Unusual harvest rains could turn nearly nine-tenths of Australia’s high-protein milling wheat into poorer-quality feed wheat, further strengthening premiums between the two that are already the highest in at least 15 years.
The impact will be felt globally, as Australia was expected to produce a bumper crop to offset a supply squeeze in high-quality wheat caused by poor harvests in other premium producers Germany and Canada.
Countries like Japan, South Korea, Indonesia, Yemen and Iraq, the key buyers of Australian prime hard wheat for use in making noodles, dumplings and flatbread, could be left scrambling to cover needs, a potential boon for U.S. wheat farmers already enjoying prices near two-year highs.
“We have a situation here in Australia where downgrades to quality have resulted in around three million to six million tonnes of milling wheat being downgraded to feed quality,” said Luke Mathews, a commodity strategist at Commonwealth Bank of Australia.
“This is significantly curtailing the production response the world was banking on. The supply situation has changed significantly from a month ago.”
Rains in the last few weeks in eastern Australia, responsible for producing the bulk of the country’s high-protein prime hard wheat, have badly damaged crop quality, with analysts estimating production to slide to a meagre 250,000 tonnes, just 12 per cent of normal supply.
Germany and Canada – the other main sources of protein-rich grains besides Australia and the United States – also suffered a setback following crop-damaging rains in summer.
The looming shortage is already being reflected in local prices, with APH premium to Australian Standard White (ASW) milling wheat highest in at least 15 years. APH this week was priced at A$460 per tonne delivered at port compared with ASW at A$343 per tonne.
The spread between Kansas City Board of Trade Hard Red Winter wheat and Chicago Board of Trade wheat futuresWc1widened to a two-year high above $0.80 a bushel on Dec. 2.
In 2008, at the height of the global grains supply squeeze, the premium in the U.S. blew out to $1.06 a bushel.