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Russian taxes and global shortage perfectly timed for Aussie wheat farmers this harvest

Global wheat prices have risen substantially over the past year, with Chicago Board of Trade wheat now sitting almost 40 per cent higher year-on-year.

The price increase stems from four main factors: higher demand for feed wheat as a substitute for expensive corn, increased ‘just in case’ demand from importing countries, production shortfalls in key export markets and, lastly, government barriers to export from the world’s largest wheat exporter, Russia, according to Rabobank agriculture analyst, Dennis Voznesenski.

“These factors will not correct quickly, creating perfect market conditions for Aussie wheat farmers this harvest,” he said.

“Chinese feed grain demand increased 18 per cent year-on-year in calendar year 2021, as the country’s hog herd continued to rebuild in the aftermath of African swine fever and, in 2022, Rabobank expects total Chinese feed grain demand for all livestock species to rise another seven to eight per cent. The increase in the hog herd in 2021/22 is forecast to see Chinese imports of wheat rise to double the five-year average and corn to nearly triple its five-year average.”

Mr Voznesenski said 2021/22 is expected to be another year of below-average global grain stocks, albeit up on last year. “Short supplies of corn globally will continue to see substitution of feed wheat into rations in China at least until a better corn crop outlook materialises globally and lowers prices,” he said.

“Over the past two years, we have seen a shift in wheat purchases from a ‘just in time’ approach to ‘just in case’. This year, Egypt will see a record wheat import program (at 13 million tonnes) as will Turkey and Bangladesh (at 11 million tonnes and 7.4 million tonnes respectively), and Indonesia will be importing a million tonnes over its 10-year average.”

On the supply side, Mr Voznesenski said there had been substantial production shortfalls in key wheat ‘origins’.

“In Canada, significant drought caused wheat production to decline 40 per cent year-on-year, according to the USDA’s latest estimate. Moving into next year, the US Climate Prediction Centre forecasts a 90 per cent chance of La Nina conditions prevailing through the northern hemisphere winter and a 50 per cent chance from March to May, meaning no end in sight for crop stress, particularly for winter wheat in the US,” he said.

Meanwhile, Russia’s 2021/22 wheat production is expected to be nearly 11 million tonnes lower year-on-year, while food prices there have escalated quickly.

“In early 2021, the Russian government introduced a wheat export tax to manage wheat inventories and food price inflation. Cumulative wheat exports so far in the 2021/22 marketing year are 16 per cent lower year-on-year, but domestic wheat prices remain high. With the latest Russian inflation figures coming in 8.1 per cent higher year-on-year, markets reacted in anticipation of a further increase in Russia’s export tax. With prices then rising, the country’s export tax has increased and now sits at almost double what it was in June 2021,” he said.

“While increasing Russian export taxes come as a heavy burden for those buying wheat on global markets, they are a blessing for Australian grain farmers. There will be limited opportunities to resupply the global market until mid-2022, with India the only exception – its expected higher exports year-on-year may alleviate some market tightness in March.

“Overall, the global outlook is one of continuing low stocks and strong prices. What we just need now is clear weather to get our wheat harvested.”

To find out more about other Rabobank research, contact your local Rabobank branch on 1300 303 033.

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