AUSTRALIA LEADS ASIAN WHEAT TRADE: 2021/22

It cannot be denied that Australia is one of the world’s largest exporters. Therefore, the nation is now set to witness a second-consecutive year of strong wheat exports. Even though there are government interventions and production cuts, Australia has still managed to sustain its exports. At the current moment, the country is forecasted to produce the second-largest wheat crop on record at 32.6 million mt in 2021/22, slightly under the previous year’s estimate of 33.3 million mt, while exports are pegged at 23 million mt, according to the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES).

The Russian government’s intervention on wheat exports and production cuts in the north and south America due to adverse weather worked to the advantage of Australian suppliers, who were struggling to be price competitive amid a prolonged and severe drought just two years ago. The market initially believed that it would be challenging for Australia to gain back its lost market share in 2020/21, following three consecutive years of drought between 2017-2019. During this time, flour millers in southeast Asia embraced the cheaper Black Sea wheat and were no longer willing to pay a $10-$15/mt premium for Australian milling wheat.

The poor crop in Argentina and export restrictions from Russia imposed from end-2020, which aligned with the start of the Australian marketing year, brought the Australian suppliers back in contention. In the 2021/22 season, Australia is set to cater to both low and high-quality wheat demand in Asia as the supply of high protein spring wheat fell on persistent dryness in North America and the weak supply of medium-to-lower quality wheat from the Black Sea, and Argentina is overpriced amid export restrictions.

COMPETITION AMONG ASIAN BUYERS
Australia’s close proximity to Asian markets, trade relations with some of the southeast Asian countries, and inelastic noodle wheat demand in northeast Asia gives its producers a combination of freight and tax advantages relative to other major origins. Buyers in southeast Asia, perhaps the most price-sensitive region, have relied on the Black Sea and Argentine wheat for feed usage or as filler wheat in the milling mix in the last couple of years until the end of 2020 when Australian wheat became the most competitive.