Prospects for prices of high-grade Australian wheat received a double boost on Tuesday as speculation mounted over large Chinese buying, and forecasters predicted quality-threatening rains.
Speculation last week, reported by Agrimoney.com, that China had bought 1m tonnes of Australian wheat firmed into a report on Reuters of a purchase of 500,000 tonnes, of milling-grade grain.
That would represents a substantial order by the standards of China, which imported 927,000 tonnes in 2010-11, on US estimates.
And with China’s official crop think thank, the CNGOIC, on Tuesday forecasting imports of 1.5m tonnes this season, that could spell further Australia deals.
‘Rains 200-400% of normal’
Separately, official Australian weather meteorologists forecast, for a second year, a "wetter" November-to-January period, during which most of the grains harvest takes place.
"A persistently warm Indian Ocean is the main driver behind this outlook, although it is also consistent with the developing La Nina in the Pacific Ocean," the Bureau of Meteorology said.
Much of Western Australia, the top grain-growing state, and "most" of second-ranked New South Wales and South Australia, looked set for "above median" rainfall, besides parts of Queensland, an important cane and cattle state.
The bureau put the chances of above-average rains at 60-80%, with some forecasters predicting they could kick-off sooner.
"Over the next seven days… rainfall will be close to normal over Victoria, but 200% of normal over New South Wales, and 200-400% of normal over all of western and southern portions of Western Australia," weather service WxRisk.com said in a forecast late on Monday.
Feed vs milling
A wet harvest, which tends to impair grain quality by lowering gluten levels and encouraging sprouting, would mark a second year in which expectations of a bumper crop were marred by relatively low levels of crop reaching milling standard.
Last season more than one-third of the wheat crop on the east coast, where rainfall was particularly strong, was downgraded to feed.
Commonwealth Bank of Australia analyst Luke Mathews said that "there is increased likelihood of harvest delays and quality issues once again this year", with potential price impact.
"The industry is still carrying a large quantity of 2010-11 feed wheat, and additional quality downgrades this year would lead to a burdensome supply of feed grain in Australia," he said.
"Feed grain prices would come under significant pressure, and high protein milling wheat prices would be very well supported."
Cotton and livestock impact
However, the rains could be good news for growers of summer crops in giving rain in an important growing period.
"This seasonal forecast will help realise forecasts for a huge Australian cotton crop in 2011-12," Mr Mathews said.
Rains would also support livestock prices, through improving pasture condition, "which in turn will support further livestock herd/flock rebuilding efforts".