The improved sentiment over Australian crop prospects, which cut further the premium of Sydney wheat to Chicago prices, has spread to chickpeas, with expectations of one of the largest harvests on record.
Sydney wheat futures missed out on a bounce in prices in other major markets on Thursday, closing down Aus$1.00 at Aus$283.50 a tonne, as Rabobank underlined improved expectations for the Australian harvest.
The bank, noting that winter crop conditions were “tending to be mostly favourable across key growing regions”, said that the wheat harvest was expected to be “above average for the 2015-16 season, at 23m-24m tonnes”.
That was above the forecast earlier this month of “around 23m tonnes” from National Australia Bank, and ahead too of the 23.6m tonnes expected by the official Abares commodities bureau, although broker Pentag Nidera has forecast a crop “potentially exceeding 24m tonnes”.
Agrimoney.com has heard of an informal forecast from one broker above 25m tonnes.
‘Prices are down sharply’
The easing in Sydney wheat futures for January reduced their premium to Chicago wheat for December, which staged a recovery in early deals, to the equivalent of some $0.51 per bushel, compared with $0.98 ѕ a bushel at the end of last month.
“Australian wheat prices are down sharply on improving conditions in their wheat crop,” US broker CHS Hedging noted, with Sydney futures down some 9% in US dollar terms so far this month, compared with a 1.2% drop in the Chicago contract.
Indeed, there are some ideas that the premium may have got too small, given the higher quality of Sydney wheat compared with Chicago-traded soft red winter wheat.
“We think that [premium] is a little on the low side for milling grades, so there is potential for it to creep somewhat higher,” said Tobin Gorey at Commonwealth Bank of Australia.
The largely benign weather conditions contrast with fears earlier in the year that the onset of El Nino, which often causes undue dryness in eastern Australia, would undermine production of wheat and other crops.
“The market continues to look at recent rainfall and the forecasts for Australia and conclude that their worst fears about El Nino are unlikely to be realised,” Mr Gorey said.
At Pentag Nidera, trader Rob Brearly told Agrimoney.com that the El Nino “has been a non-event so far this year”, with “pretty perfect conditions” in eastern Australia.
This – combined with expectations of a sharp rise in plantings – has put a potential chickpea crop of 750,000-900,000 tonnes on the radar, Pentag Nidera said on Thursday, compared with a harvest last year estimated at about 500,000 tonnes.
It could also turn out to be the highest in at least a decade, beating the 813,300 tonnes set in 2012-13, on Abares data.
However, unlike for wheat, chickpea growers are enjoying bumper prices, with Pentag reporting a Brisbane price of Aus$810 per tonne, compared with less than Aus$450 a tonne at the end of August 2013.
“Our chickpea trader, who has more than 20 years’ experience, has only seen prices like this on a few occasions in his career and they are usually a result of something going dramatically wrong,” the broker said.
Indeed, the chickpea premium to wheat is at well over double typical levels, Mr Brearly said.
The elevated prices – which have spurred a rise in Australia sowings believed at roughly 75% this year, taking them to 625,000 hectares – have been fuelled by last year’s weak crop in the key Indian market, which produces some 6.5m-7.0m tonnes of chickpeas itself a year, but consumes 8.0m tonnes, on Pentag estimates.
However, the broker cautioned over reason to expect a drop in chickpea prices ahead, with India’s own farmers likely themselves to switch some area from wheat to the pulse.
“It is not a great leap of faith to consider the Indian farmer may substitute wheat hectares for chickpeas given the price spread, in the same way the Australian farmer did in May,” Pentag said, estimating that a 4% rise in Indian sowings would lift area by more than 1m hectares.
“The pressure is on our market to get a very large portion of our export task completed before January 1,” to get Australian chickpeas to India before the country’s own harvest begins in March.
Still, Rabobank also noted the potential yet for El Nino to disrupt Australian crop production, saying it “remains a key risk”.
“The ongoing risk of a hot and dry finish to the [winter cropping] season remains, with strengthening El Nino indicators over the past fortnight,” the bank said.
(Source – http://www.agrimoney.com/news/australia-on-track-for-strong-chickpea-as-well-as-wheat-harvest–8703.html)