Downward Revision To Support Wheat Prices
BMI view: We have revised down our forecast for wheat production from 25.5mn tonnes to 24.0mn tonnes after the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) revised wheat output to 24.5mn tonnes. We still forecast a rebound in production balance but expect the country's share of global exports to shrink in 2013/14. Even after we acknowledge the country will play a significant role in supplying Asia, we believe that Australian and Argentine supply will still not be sufficient to significantly loosen the global market, and prices will likely trade upwards in the short term.
We have revised down our forecast for wheat production from 25.5mn tonnes to 24.0mn tonnes after the ABARES revised wheat output to 24.5mn tonnes. The revision comes on the back of dry conditions over most of Western Australia, and over-abundant rainfall in Eastern Australia. We expect more revisions to be made to output in the coming months and have placed our forecast slightly below the current official estimates. However, we believe more significant losses to output will be unlikely as yields are still expected to be higher than in 2012/13. ABARES and the USDA both forecast wheat yields around 1.85-86tonnes/hectares in 2013/14, compared to 1.67tonnes/ha in 2012/13.
Even after this revision, we forecast a rebound in the country's production surplus, even if we do not expect a return to record surpluses of the 2010/11 and 2011/12 seasons. We forecast the country's production surplus to grow from 15.2mn tonnes in 2012/13 to 170.2mn tonnes in 2013/14, compared to 23.4mn tonnes in 2011/12. Still, the country's exports could reach 19.0-19.5mn tonnes in 2013/14 according to the USDA and ABARES. However, the country's share of global exports will be diluted by the strong expansion in the rest of global production, especially from North America and Europe. The USDA forecasts Australia's share of global exports to shrink from 13.7% in 2012/13 to 12.2% in 2013/14.
|Worse Than Expected|
|Australia - Wheat Area Harvested (hectares) & Yields (tonnes/ha)|