Uncertainty about Australia's wheat crop is keeping the country's growers from hedging their production, despite good prices, brokers say. "There's a lack of grower selling," said Pat Cogswell of major commodities futures broker MF Global. "They're unwilling to hedge it until the crops are much more certain."
Australia's 2008/09 wheat crop has been planted on a record area of 13.97 million hectares, and current forecasts are for a big crop of around 23 million tonnes, up from a drought-affected 13 million tonnes last season. Rainfall has so far produced reasonable crop growth, but it has been patchy, especially in Western Australia, South Australia, Victoria and southern New South Wales.
The crop will be one of Australia's biggest if average rains are received through to harvest, beginning in October. But analysts say the crop faces considerable downside, with a risk that last year's 30 percent downgrade of crop estimates in September could happen again this year.
"There's still a fair bit of risk at this point in the season," Cogswell said. The lack of forward selling comes depsite Australian wheat futures holding up well after reaching record highs earlier this year as world grain prices soared on tight supplies and strong demand. At A$330 a tonne, Australian Stock Exchange January 2009 wheat futures are down 13 percent from a peak of A$380 last month and 27 percent off an all-time high of A$450 struck in February this year.
Cogswell said lack of forward selling was being compounded by some farmers having to roll forward old positions from the last two seasons, which were hit badly by drought. A doubling in prices of fertilisers and chemicals, together with the rocketing price of diesel fuel, has also left farmers reluctant to pay hedging fees.