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Bumper Aussie Wheat Harvest Heralds Sowings Jump

02 February 2011

The lure of high wheat prices, and margins four times those of two years ago, is to inspire record wheat sowings in eastern Australian for the late-2011 crop even before combines have finished the current harvest, analysts said.

According to agrimoney.com, farmers in New South Wales, Queensland and Victoria who have enjoyed a record harvest this year â€" in quantity terms â€" are to increase their potential further for the 2011-12 season by raising sowings more than 10 per cent, Australia & New Zealand Bank said.

The forecast reflects in part the boost to farmers' finances brought by the current harvest which, even though seeing hefty rates of milling wheat downgraded because of rain damage, is still the most profitable in at least a decade thanks to high prices even of feed grain.

Farmer's gross margin, defined as revenues minus variable costs such as fuel, fertilizer and sprays, reached Aus$350 per hectare, Aus$100 above the historic average.

Swaps Opportunity

By selling ahead, they looked set to raise margins even further for the 2011 crop.

Wheat futures for January 2012 delivery in New South Wales closed at Aus$341.50 a tonne in Sydney on Friday, a premium over the Aus$330.00 a tonne for the near-term March contract.

And farmers selling through swaps linked to US wheat were selling at more than Aus$350 a tonne this week, although the lag by Sydney prices behind Chicago's, which has allowed this trade to work, appeared to be closing.

"Chicago's premium over Australian 2011-12 wheat has narrowed," said Luke Mathews at Commonwealth Bank of Australia.

ANZ added that Aus$350 a tonne "would generate a farm gross margin closer to Aus$400 per hectare, given fertilizer prices are not dissimilar to last year".

"This would make two years of high profitability for east coast wheat growing."

Grains vs Livestock

In fact, yield prospects have been enhanced by the rains, blamed on the La Nina weather pattern, which prompted the downgrade of so much of the latest harvest.

The La Nina looks set to continue "through the Australian planting window, increasing the chances the crop will be planted on a high soil moisture profile," ANZ said.

Furthermore, while livestock farming, which has historically accounted for a bigger proportion of eastern Australia agriculture, is also seeing better times, the high costs of buying animals made a switch back from cereals less likely.

The changing dynamics eastern Australian farming is evident in increasing levels of wheat sowings, which 20 years ago came in below 3m hectares.

In 2008-09, when the region's wheat sowings hit the current record, of 6.7m hectares, there were 5m fewer sheep being grazed.

TheCropSite News Desk



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