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Drought hit Australia to import wheat for first time in over a decade

Australia will import foreign-grown wheat for the first time since 2007 following an approval issued by the Department of Agriculture and Water Resources.

The permit issued is for a single shipment of bulk wheat from Canada, which is expected to arrive in Australia in the next six to eight weeks.

The vessel consists of high protein wheat for milling purpose, destined for Port Kembla in New South Wales, a trader based in Australia said.

The move comes after months of market speculation about wheat imports as widespread drought in the east coast of Australia damaged wheat crops, driving up domestic prices to historical levels.

The current decade low 2018/2019 harvest season saw Australian wheat production drop by 19% to 17.3 million mt, according to the Australian Bureau of Agricultural and Resource Economics and Sciences. The combined wheat output from New South Wales, Victoria and Queensland was down by 45% from the previous season to 4.15 million mt.

With the severe drought having slashed wheat output in the East Coast, the region relied on Western Australia for it’s wheat supply in both the feed and milling industry. However, protein levels were low for wheat grades in Western Australia, tightening supply of high protein wheat.

The shortage of domestic high protein hard milling wheat explains the move to import high grade Canadian wheat, market sources said.

The imported vessel will be “subject to strict conditions to manage any biosecurity risk”, DAWR said in a statement.

“The import conditions require that the grain is sourced from areas assessed as presenting a low plant and animal biosecurity risk and impose strict movement, storage and processing controls within Australia,” it added.

AUSTRALIAN WHEAT EXPORTS SLUMP ON UNCOMPETITIVE PRICES

Australia is the biggest wheat exporter in the southern hemisphere, with the advantage of locational proximity to Southeast Asia making Indonesia it’s biggest exporting market.

However in the past few years, exporters in Southeast Asia, particularly Indonesia and Malaysia, have significantly increased consumption of wheat from the Black Sea, attracted by the competitive pricing.

The ravaging drought conditions devastating wheat crops and driving prices higher have not helped Australian suppliers with the fierce competition in the region, as millers continue to replace its dependence on Australian wheat with cheaper alternatives in the flour blending mix.

In the past month, with Black Sea new crop making a comeback in Southeast Asia, Australia has been struggling to sell both feed and milling wheat in the region.

Last week, a buying group in the Philippines bought two 55,000-mt cargoes of feed wheat from the Black Sea/EU at $198.75/mt CFR for July 2-22 shipment and $197/mt CFR for August 1-21 shipment.

For the same tender, the lowest Australian feed wheat offers were heard at $235.50/mt CFR. Despite the 7% import tax advantage, Australian feed wheat was overpriced by roughly $23-$25/mt.

For milling wheat, a buyer in Indonesia was heard to have booked a 30,000-mt cargo of Black Sea 11.5% wheat for August shipment at around $210/mt CFR Makassar last week. This is $35-$40/mt cheaper than Australian APW wheat for the same shipment period.

Despite the free fall in prices from the start of the year, Australian wheat remains uncompetitive relative to new crop from the Black Sea.

Platts APW was assessed at $227/mt FOB Kwinana Tuesday, down 29% from January 2, 2019.
Source: Platts

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