Wheat

  • GVP $4.4 billion est. Up 14% year-on-year.
  • High prices, albeit subdued by a mix of domestic and international factors.
  • Exports valued at $2.9 billion, with Vietnam the largest market.
For a second consecutive year wheat was by far the largest contributor to NSW primary industries GVP at an estimated $4.4 billion, and 19% of total GVP. The strong result was attributable to conducive seasonal conditions during the growing season which set up record average yields across the state, and underpinned the states second largest crop on record at an estimated 12.8 million tonnes. The near ideal growing season was only tainted by heavy rainfall across the entire NSW wheat growing belt at the beginning of harvest which caused widespread quality downgrades, and crop losses in some isolated cases.

Quality downgrades meant that prices received by growers were lower than would have been achieved otherwise. However, a combination of global factors including the conflict in Ukraine resulted in prices rising shortly after harvest, offsetting quality discounts in some cases. The value of wheat exports also rose sharply to $2.9 billion, with domestic supply chains running at full capacity for the entire year as they dealt with two record crops and exportable surpluses in a row. South East Asia were major customers for NSW wheat, with Vietnam overtaking Indonesia as our largest market.

Production

Wheat plantings were down marginally on 2020-21 to 3.7 million hectares, although still 18.8% up on the 10-year moving average. Strong plantings were helped by residual moisture carried over from winter 2020 and the following summer, as well as very much above average rainfall across the entire cropping belt in March 2021. 1 112 This was followed by generally below average April and May rainfall was followed and then generally above average rainfall returned from June through to October, allowing good plant growth. 1 The Vegetation Vigour Index (VVI), which correlates with plant growth and yield potential, was generally at the highest end of the spectrum for much of NSW across the growing season, with only some isolated pockets of lower VVI readings in the far south west border region of NSW. 212

The conditions set up the potential for optimal yields in much of the cropping regions, including South West NSW which had been impacted by below average winter rainfall the season prior. 1 Unfortunately, La Nina influenced November 2021 rainfall came at a very inconvenient time, with widespread heavy rainfall in the form of two weather fronts, impacting most of the state. Northern NSW producers began stripping crops prior to this rainfall, with reports of high protein milling grades being received. However, it was estimated that only 1% of the wheat crop in Southern NSW had been harvested prior to the rain event. 190

Despite the heavy harvest rainfall, some isolated cross losses, lower test weights and quality downgrades, average yields reached a record for a second consecutive year at 3.45 t/ha, and some 60% above the 10 year moving average. 212

However there are reports of yields in some regions being higher than the year prior. Overall NSW production is estimated at 12.8 million tonnes, the second largest crop on record, and just shy of the prior years record crop. 212

Wheat Production & Yield 201 212

  • Production
  • Production 10 Year Moving Average
  • Yield (RHS)

Price

Wheat Premium and Discount (Basis) 223 234 245

  • H2 (Melb) to CME Futures
  • ASW (Melb) to H2 (Melb)
Wheat prices have been experiencing higher than usual volatility due to a range of factors. Domestically, wheat prices were influenced by a record crop nationally resulting in significant amounts of exportable surplus, and crop quality downgrades due to the wet harvest on the east coast and particularly in NSW. Despite good crop quality being reported before the November rainfall, overall crop quality was down, with approximately 32% of the crop being premium hard wheat milling grades (APW or better). 212 This compares to 84% of the crop being APW or better in Queensland where the harvest was mostly complete before the November rainfall hit, and 53% in Victoria which largely missed out on the harvest rainfall. 212

Wheat price spreads between H2 and Australian Soft White (ASW) grades increased by approximately $53/tonne on average since December 2021, compared to the 12 months prior. 223 234 245 This was owing to the relatively large volume of lower grades being delivered compared to premium hard wheat grades. Despite this, rising wheat prices generally since December 2021 helped to buffer some of the impacts of quality downgrades.

Trade

Top 5 Wheat Export Partners 2021-22 35

  • Vietnam
  • China
  • Indonesia
  • Philippines
  • Italy
  • Other
Wheat exports rose sharply to $2.9 billion, up 105% year on year. This was a result of two consecutive record crops in a row, with significant exportable surplus available for export through the entire 2021-22 financial year as opposed to approximately only seven months of the year prior. Port capacity and grain logistics networks were operating at peak throughput for the entire year, with average port volumes approximately 47% higher than prior peak flow periods of 2010-11 through to 2013-14 and 2016-17. 35

Also supporting the wheat export value were higher export prices, which have increased roughly in line with farm gate prices since November 2020. South East Asian market featured prominently in these export earnings with Vietnam, Indonesia and the Philippines all in the top 5 export markets and making up a combined 42% of total wheat export value. 35 Overall Vietnam was NSW largest wheat export market with $694 million of wheat exports being shipped, and Australia making up approximately 67% market share of wheat exports to Vietnam in 2021. 35 46 Vietnam has been a growing market for noodle and bread wheat exports, with a growing middle class and increasing per-capita wheat consumption. 57 NSW relative competitive advantage in terms of freight rates to these South East Asia compared to key international competitors, heightened food security concerns and established trading relationships helped support exports to these markets.

Wheat Export Volume and Avg Export Price 35

  • Unit Price
  • Tonnes (RHS)
  • Avg. Monthly Export Vol. (RHS)

Macroeconomic Conditions

Global factors played an important role in influencing wheat prices, with Canada and parts of the US experiencing prolonged drought conditions. These two producers were the 6th and 5th largest producers in 2020-21 respectively, but production was estimated to decline by a combined 18.4 million tonnes in 2021-22, or 21% year on year. 256

In the US, large areas of the major cropping regions in the North and South Western regions experienced drought conditions ranging from abnormally dry to exceptional drought, with winter wheat crop abandonments were the highest since 2002. 2 68 These conditions eased in some areas more recently, with converse cool weather and excessive rainfall in the North US Plains plaguing spring wheat plantings, motivating reports of the planting pace the slowest on record. 79

Similarly, large areas of the major Canadian wheat production regions of Manitoba, Saskatchewen and Alberta have been experiencing significant drought conditions since approximately April 2021, intensifying in the second half of the 2021 and early 2022. 13 As a result, North American local factors have had a more significant influence on US Wheat futures, and Australian wheat has been trading at an increasing negative basis over this period, in contrast to the strong positive wheat basis received during the recent Australian east coast drought in 2017 to 2019.

Global Supply & Demand 256

  • US-Canada-Ukraine-India-Russia Ending Stocks
  • ROW Ending Stocks
  • Global Consumption
  • Global Production
Compounding the global wheat supply impacts has been the Indian Governments announcement to ban wheat exports, which was previously anticipated to be approximately 10 million tonnes. 24 The Indian Government made the decision based upon a prolonged heat wave experienced in April and May 2022 curbing Indian wheat production forecasts, with the ban aimed at reducing the impact of food inflation on domestic consumers. 24

Perhaps the largest influence on wheat markets though was Russia’s invasion of Ukraine, with these two countries making up 12.5% of global wheat production over the past 10 years. 256 Russia’s wheat production is on track to reach a near record production in 2022-23, however Ukraine’s crop is currently forecast to decline by a large 12.5 million tonnes, down 38% in 2022-23. The supply issue is compounded by Russia’s control of Ukraine Black Sea ports, a vital gateway to Ukraine’s key markets in the Middle East and North Africa (MENA).

Outlook

The forecast is for another above average wheat area being planted in NSW, estimated at 3.6 million hectares, down 2.7% year on year, with the forecast risk heavily weighted to the down side. 201 Yield and hence production is forecast to decline, partly attributable to lower nutrient levels on the back of large back-to-back seasons. The recent La-Nina system is forecast to persist into early 2023 with yields and grain quality under threat in some areas of the state, including areas of the North West, Northern Tablelands, Central West, Central Tablelands and Riverina, as successive wet weather events impacted the state during early spring. Farmers terms of trade (prices paid for inputs relative to prices received for farm output) are expected to stabilize after erosion in 2021-22 following a number of global supply chain impacts to major inputs of diesel chemicals and fertilizer, however this is also likely to be heavily influenced by the Ukraine conflict. 90

One of the most important drivers of the wheat market in the near term will be developments in the Russia-Ukraine conflict. Although Russia was estimated to have a large harvest of 75 million tonnes allowing large exports, important questions remain around the trading conditions that will eventuate beyond the end of the conflict. Meanwhile Ukraine’s wheat crop is forecast to decline by 38% due to the ongoing conflict. Despite a sea corridor for Ukrainian wheat exports being created Ukraine supply chains are operating under extreme and perilous circumstances, leaving a significant hole in the global supply. This is likely to disproportionately impact MENA nations, with which Ukraine had substantial market share, and has already resulted in food security issues and rampant food price inflation in many countries. Increased production from the US, Canada and significant production from Australia will partly offset these supply issues.

Stronger Primary Industries Strategy

Farm Business Resilience Program

The Farm Business Resilience Program builds the strategic management capacity of farmers/farm managers and employees to prepare for and manage risk, adapt to a changing climate and improve the farm businesses’ economic, environmental and social resilience. The program takes a proactive approach to promoting long-term resilience and sustainable productivity and growth in farm businesses, before times get tough.

Strategic Outcome

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Response Capacity
The pilot program from July 2021- June 22, delivered an intensive professional business coaching program to 140 farm businesses across NSW, with the goal of driving behaviour change in the way businesses plan for and manage risks and address issues with the assistance of a professional coach. Each business received 10 months of business coaching with fortnightly one on one coaching sessions online, and 6 face to face group sessions combined with on-farm visits.

Farmers from a wide range of industries were engaged in the pilot program. Two of the participants included Rachelle and Derek Hergenhan who run three properties near Armidale, Brewarrina and Dubbo. The Farm Business Resilience Program was appealing to them because they wanted to get a better understanding of their financial information. Although the couple both grew up on farms and have been around farming their whole lives, they knew they needed to be able to manage their farm business in an economically responsible way.

Derek said they had felt the effects of the last drought and had learned first-hand how important it was to prepare:

“To ensure that our farm is resilient going into the future, it’s all about managing our feed base and ensuring that we’re not exposing our soil unnecessarily to the effects of erosion. We've got to accept the fact that there are going to be times again in the future where we 100% destock like we did in 2020 - to ensure that you know, we don't damage our country, so that we can best bounce back from tough times.” Rachelle said joining the business coaching has improved their financial literacy and their confidence with numbers. “I really wanted to get a better understanding of our financial information. I felt like we didn't have a really good handle on the nitty-gritty of the finances and how to use the information we've got to make decisions for improving our business.”

Each fortnight Rachelle and Derek would have a coaching session that would set goals and tasks for the farmers to complete before their next session. This high level of accountability was a key driver for behaviour change in how they manage their business. The Hergenhan’s also completed a business plan with their coach – to give them a clear direction for the future of their business, and remain adaptable to changing conditions. “What I found really valuable as part of the coaching program has been, you know, writing down our ideas and our goals and our vision. Farm business resilience to me is really related to the ability of our farm to continue on - regardless of what gets thrown at us,” said Derek. Derek reflected on how the coaching has improved their resilience, “It's really given me confidence to say, actually we can grow our farm business. We can be more resilient moving forward. And there is still capacity in ourselves to achieve, you know, these things that we want to, and really make the best life for ourselves and our kids.”

Over 250 farmers participated in the coaching program in 2021/22. Of these, 100% of participants have reported they have implemented specific behaviour changes over the life of the coaching program. The Farm Business Resilience Program has been extended from June 2022-December 2024 and will offer the coaching program to two additional cohorts over this period.