With the Russia-Ukraine war and a heat wave in the Northern Hemisphere putting the world's wheat supply on alert, Australia appears set for an unexpectedly bountiful harvest. As grain exports through the Black Sea face disruptions and crop conditions in the United States, Canada and Europe deteriorate, some say Australian wheat could make up the shortfall.
On the 9th, Bloomberg said Australia's key wheat-producing states—New South Wales, Queensland and Victoria—saw more rain in the first half of this year than usual. Contrary to earlier expectations for hot, dry weather from El Niño, ample rainfall has significantly improved the harvest outlook.
Concerns that the Iran war would lead to shortages of fuel and fertilizer have also eased. Australia's diesel prices are down about 25% from the April peak, and global fertilizer prices have stabilized.
Julia Hausler, a farmer in northeastern Victoria, also told Bloomberg that at the start of the year she did not expect a crop this good. She said she had worried about heat waves and drought from El Niño and fuel and fertilizer shortages due to the Iran war, but rain was sufficient in the first half and the burden of input costs was smaller than expected.
As growing conditions improved, financial firms raised their forecasts for Australia's wheat output one after another. Rabobank in May projected Australia's wheat production this year could fall to 21.3 million tons, more than 40% down from last year. Recently, however, it lifted the outlook to as much as 30 million tons. That is below last year's 35.8 million tons but above the 10-year average.
Bendigo Bank's agribusiness unit also forecast Australia's wheat production at about 30 million tons this year. It said output could rise to as much as 33 million tons if weather conditions are favorable.
Australia's crop outlook is also affecting global wheat prices. Rod Baker, an agriculture analyst at Bendigo Bank, said that with large inventories of last year's harvest still on hand and Australia's production outlook improving, U.S. wheat futures are under downward pressure. Wheat prices this week neared a one-month low.
But the supply instability in the global wheat market has not been resolved. Russia and Ukraine, both major wheat exporters, have recently attacked each other's port facilities, blocking Black Sea shipments at least for the time being.
Crop conditions in key Northern Hemisphere producers are also poor. Wheat farming in the United States, Canada and the European Union (EU) is being hit by heat waves. France is expected to see output decline due to extreme heat. Canada has reduced its wheat acreage from last year.
Australia's role as a major global grain exporter could therefore grow. Australia exports large volumes of wheat to Southeast Asia and the Middle East. If other producers' exports fall, major importers such as Indonesia and the Philippines could buy more Australian wheat. There is also speculation that China may increase imports of Australian wheat.
Denis Voznesenski, an agricultural economist at Commonwealth Bank of Australia, said new routes could be arranged to export Black Sea wheat. However, if repairs to damaged ports are delayed and shipping disruptions drag on, importers could seek alternative suppliers.
The final variable is a strong El Niño expected to arrive in the second half of the year. If El Niño develops, extreme heat and drought could hit during key stages of wheat growth. Australia's wheat harvest typically begins in October.