Australian wheat exports are set to face stiffer competition as Pakistan, which resumed exports after three years, pours grain from its new crop into the market and offers competitive prices to millers in Asia, the Middle East and Africa. Overseas shipments by Australia – the grain’s fourth largest exporter – have already suffered from the country’s strengthening currency, while a return of Black Sea cargoes, after last year’s drought, promises to worsen the situation.
Black Sea wheat will hit markets from September, raising the stakes in the trade of lower grade feed wheat, heaps of which are lying across Australia. The stream of supplies will also weigh on the benchmark Chicago wheat prices, already down nearly nine percent this year, potentially easing global concerns over food inflation. “There is around $80 spread between the two origins, which makes it attractive for millers to take Pakistani wheat, even though Australian is better quality,” said one Singapore-based grains trader with an international trading company.
“For July and August shipment there is good scope for Pakistani wheat after that the Black Sea region will become active.” Australian wheat sales have slowed in the past few weeks as a strengthening domestic currency has lifted prices for overseas buyers, while Pakistan has dumped some one-and-a-half million tonnes into the global market since it resumed overseas sales.
“Export enquiries have gone down, everyone is saying that Australian wheat is too expensive because of the high Aussie dollar,” said Adam Davis, a senior commodity analyst at Merricks Capital, a Melbourne-based fund which invests in agriculture. “It feels like things have gone quiet in the last few weeks because the dollar has appreciated.”
The Australian dollar has had a remarkable run of appreciation not only against the ailing US dollar but against almost all other currencies. It tore to a 29-year high of $1.1012 earlier last week, before a large sell-off in commodities on Thursday set it back a little to $1.0725. The currency has gained 10 cents in less than two months. Analysts say that Pakistan could further dent Australia’s wheat exports with expectations of a near-record crop from this year’s harvest which is now underway. Private exporters in Pakistan have made large sales of new-crop wheat from Pakistan in recent weeks which, according to private trade estimates, are around 200,000 to 300,000 tonnes.
Pakistan is making inroads into Australia’s traditional strongholds of Indonesia and Malaysia, while striking deals with millers in Bangladesh, United Arab Emirates and Tanzania at prices between $300 and $310 per tonne, free on board. This compares to Australian prime wheat (APW) being offered around $380 a tonne, with 11-12 percent protein levels, similar to those found in Pakistani wheat. Pakistan is expected to produce at least 25 million tonnes this year, leaving it with at least a couple of million tonnes to export with consumption estimated at around 22 million.
“The crop looks bumper and we are getting a lot of interest from buyers in Asia, the Gulf region and East Africa,” said Khawer Jamal, a director of Karachi-based grain exporter Seatrade Group. “Two million tonnes of wheat exports is easily achievable from the new-crop as we have another couple of million tonnes lying in reserves.” Pakistan is seen booking cargoes for up to August shipment after which the market’s attention is expected to turn towards the Black Sea region, which is widely expected to boost exports after a devastating drought last year.
