A lens on the Agri-Commodities; Wheat and Sugar

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 A lens on the Agri-Commodities; Wheat and Sugar

Australian agriculture is anticipated to observe a robust growth in 2019–20, despite facing its fair share of challenges throughout the year. The value of farm production is estimated at $59 billion in 2019-20, with support from the resilient commodity prices. Australia earns major foreign currency through its agricultural products and is forecast to earn another $43 Billion in 2019-20.

At present agricultural exports has made it to the top 3 exports segments by values for Australia. The drought like situations especially in Eastern Australia for over 2 years culminated earlier this year with widespread rainfall across the country and is anticipated to be reflected in a stronger output of multiple agricultural commodities.

Let us look at the global scenario and opportunities and challenges and how Australia is emerging as a stronger player in the agri-commodities globally.

Source: ABARES Agricultural Commodities: March quarter 2020

Source: ABARES Agricultural Commodities: March quarter 2020

Wheat- the Basic staple food worldwide

Lower production from the Black sea, European Union and the United States could aid the wheat prices further strengthen to around US$225 a tonne in 2020-21. During the coming 3 to 5 years, the world’s global wheat supply is expected meet the demand, leading to softening of the Agri-commodity prices.

Global Supply to remain flat over the upcoming years: The global wheat production currently stands around the 766 million tonnes in 2019, fuelled by strong production from India and the favourable climate conditions in Australia and Argentina. With backing from the Indian government, Wheat production in India is expected to rise over the upcoming years. Turning heads to Argentina, the newly elected government regime hiked the export duties on wheat, corn, soybeans and soybean oil. With higher tariff result in restricted profitability for the farmers, leading to lower yields and production of wheat in turn. The area under plantation for the winter wheat continues to decline for the 7th years in a row. As for the Black sea region, the unusual dry and hot weather conditions is expected to adversely affect the yields in 2020.

Source: ABARES Agricultural Commodities: March quarter 2020

Source: ABARES Agricultural Commodities: March quarter 2020

The Australian wheat production is anticipated to increase by over 50% due to widespread rainfall during the March quarter, recovering strongly from the drought like situations. The USDA anticipates a strong production of over 23 million tonnes of Wheat crop in 2020-21 with exports rising to 14.5 million tonnes, a 77% increase in exports.

Global Demand looking for steady rise: The global wheat consumption is scheduled to grow in 2020-21 and thereafter, with a rising fraction of population consuming milled and feed wheat. The lockdown globally and rapid buying during the coronavirus outbreak, has prepared the global citizens to consume more sustainable and non-perishable grains.

Demand Drivers

The 3 key factors for demand growth would be the rise in population, rising incomes especially in developing countries and dietary changes. A higher consumption of the processed food products from the wheat flour such as bread, noodles, pasta, biscuits, cakes and pastries are also anticipated. With fewer substitutes, the milling wheat demand remains stable irrespective of the price changes.

Sugar – Adding sweetness to our world

Sugar, the basic ingredient is a basic food ingredient in almost all culture. Raw sugar prices are expected to rise to US$13.5 cents a pound. In fact, the supply disruptions may result in the situation of undersupply of sugar for the first time biennially, strengthening its prices. However, the high carryover stocks will keep the prices in check. The adverse seasonal conditions affected the cane production downwards in India and Thailand and caused the sugar prices to increase to US$15 cent per pound during the March quarter 2020. The Brazil crushing season is expected to moderate the prices, with the slightly higher sugar prices to result in a larger proportion of the cane for sugar production. The additional supply from Brazil will possibly, offset the price rise during the first quarter of 2020.

Supply to the End User

The global production is expected to fall for the second year in a row which along with the lower inventories would put an upward pressure on the prices. Supply from Brazil is expected to be in line with the previous year production figures as ethanol continues to deliver high returns restricting the proportion of cane for sugar to a larger extent. The production of sugar in 2020-21 in India is expected to recover contingent on the monsoons.

The Supply from India will replace the reduced output from Thailand to meet the global demand. Farmers in Thailand are switching to more profitable crops such as Cassava instead of cane. The stable supply from Australia may come in handy for exports and is expected to stand at around 4.5 million tonnes level. Australia may gain larger exposure in the global markets via the processing efficiency and its proximity to east Asia.

Source: ABARES Agricultural Commodities: March quarter 2020

Source: ABARES Agricultural Commodities: March quarter 2020

The raw cane sugar market faces critical issues due to widespread lockdowns globally and with the restrictions on travel and shortage of staffs and resources, a huge supply disruption may lead to a spike in sugar prices. With lockdowns easing across the world with onset of May, any such disruption is expected to fade away soon.

Growth in the Global sugar consumption

Rising population and incomes in the developing economies are expected to drive the demand further. A small downward pressure cannot be ignored which is arising due to health awareness and dietary changes. However, the demand from the developed world remains consistent with the previous years. Rising health awareness are driving people who can afford, to switch to low-calorie artificial sweeteners. An introduction of a new concept called sugar tax has constrained growth in many European markets. As per the concept, a food or beverage with sugar are liable to pay additional taxes and was introduced in markets including Estonia, Ireland, Qatar, South Africa and the UK to put pressure on the companies to offer healthier options.


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