For Australian grain farmers who just enjoyed a record harvest, the horror of war on the other side of the world isn’t translating into massive financial gains despite the surge in the global wheat price.
According to Thomas Elder Markets, the price of wheat received in WA has risen from around $350 per metric tonne at the start of February to around $380 a tonne, in contrast to the jump in the global futures price on the benchmark Chicago Board of Trade from $396 to $536 [converted from bushels and US dollars].
It peaked at as much as $715, but has eased this week.
“If there’s a ceasefire, the market will absolutely collapse,” says Thomas Elder Markets Commodity market analyst Andrew Whitelaw, noting the global futures price was often volatile, partly due to speculators.
Mr Whitelaw says the discount between the global futures price and physical Australian price is at record levels as opposed to typically being at a premium, driven by speculation, the recent bumper harvest, and the maxed out supply chain.
He adds local farmers’ costs for diesel and fertiliser have spiked, on top of supply chain bottlenecks and labour challenges related to COVID-19, so “it’s not like Australian farmers are benefiting” from the war.
“It’s actually 30 per cent of world traded grain could disappear, so yeh it’s absolutely huge,” says Fulwood, who farms wheat, barley, canola and lupins with wife Jo on 7000 hectares near Cunderdin, 140 kilometres east of Perth.
“And we’re already seeing that in what’s happening with world prices, but locally … people can come in and buy the grain all day long, but they can’t actually export it because the shipping and/or physically loading slots are full.
“The other part of it is we’re sitting here in WA, and it’s very, very dry at the moment so, yeah we have to grow the stuff before we can even worry about what the price is going to do, and we are going to have to buy next year’s inputs at potentially two to three times what we paid last year.
“So it’s not going to be all smelling the roses … and when it’s an impact of war it’s not a good thing for anyone.”
Citigroup economists this week warned that with Russia and Ukraine being the largest exporters of commodities like wheat and also fertilisers the “pressures on supply chains are likely to mount and may yet manifest themselves in unexpected ways” as the conflict persists.
The International Monetary Fund is concerned surging commodity prices on top of already high inflation will hit people living in poverty particularly hard as higher food prices sap their incomes, with Africa especially vulnerable.
Mr Whitelaw says food security was a major concern for the Middle East and North Africa that import grain from Ukraine and Russia and have populations that consume a lot of bread. But he says food security and higher prices for products like bread aren’t a concern in Australia given the abundance of supply and lack of change in the price of wheat locally.
“Last year, we produced enough wheat for every single man, woman and child to have more than a tonne of wheat, and there’s no chance in hell anyone could eat a tonne of wheat,” he said.
Amid the war and east coast floods, the Department of Agriculture, Water and the Environment told AFR Weekend the Australian Bureau of Agricultural and Resource Economics and Sciences’ recent forecasts of Australian farmers producing a record $81 billion in output this financial year still stood, and it would be updated in June.