Unexpected Rains in Australia Pushes up Chicago Wheat Futures

Australia is an important player in the global supply of grains and oilseeds and has become the 4th largest exporter of wheat in the world in 2021/22 improving its rank from the 6th largest in the previous year. The country was enjoying its strong position in the global market as supplies from other major wheat exporters - Russia, European Union, the United States, Canada, and Ukraine shrank due to limited production capacities. However, the recent rains in Australia have added great concern for milling wheat markets across the globe. The global supply of wheat is already tight, with significant reductions to the Canadian crop alongside quality issues from France. Furthermore, supply constraints from Russia in the form of floating taxes and export quotas have reduced the availability of wheat in the global market.

The rainfalls in Australia have hit during the peak wheat harvesting period which has delayed the process and raised concerns regarding the quality of wheat. It is predicted that the quality of wheat coming from Australia is going to be lower than anticipated. Even though it is too early to conclude, the rains have impacted the stock of wheat available for the domestic and export markets, as growers and suppliers are refraining from selling their wheat without assessing the actual crop condition.

As wheat quality remains in question, the milling wheat prospects have fallen in Australia and there is little to minimal relief to global markets. Wheat importers across the world were looking forward to the Australian crop but the sudden rains have resulted in constrained supplies and raised concerns regarding the availability of high-quality wheat. High protein is popular for milling and processing into bread and pasta which is consumed across the world. Low-quality wheat in Australia is likely to increase the demand for supplies from the United States and Canada.

Source: Trading Economics.

Chicago wheat futures were being traded USD 8.4 per bushel, at a nine-year high due to tight global wheat supply and inventories. The futures increased for a fourth consecutive session to scale their highest level since December 2012 as concerns about global supplies underpinned the market. Wheat traders are still hopeful as the new wheat harvest from the Northern Hemisphere is due in a few months.

Sources

• Reuters. “Wheat soars to 9-year peak on supply concerns, strong demand.”
• The Western Producer. “Early Australia wheat harvest shows lower protein, raising supply woes.”
• Trading Economics. “Wheat.”