News Analysis: Aussie wheat farmers eye falls in overpriced market

Australian grain farmers are in for a tough time as they eye bumper yields in a likely wet winter and spring.

Two years of solid global production has led to the world being awash with grain has sent prices falling to 10-year-lows. Adding further pressure, the Ukraine is currently harvesting their crops and the U.S. will enter their main wheat harvest in the next two weeks.

Australia's grain crop too is likely going to exceed expectations after Australia's national weather bureau forecasted a wet winter and spring season.

Known for its high quality and clean grains, that would be good news for Asian importers seeking fine product, however Australian prices remain at stubbornly high levels. When combined with depressed shipping costs, its cheaper for importers to source product in Europe, than Australia, despite significantly shorter at-sea times.

"When you compare prices on offer to the rest of the world, it's a lot more expensive in Australia," Mecardo grains analyst Andrew Whitelaw told Xinhua when comparing prices with non-traditional competitors.

Australian grain is fetching just over 200 U.S. dollars at store in Perth - before terminal/port costs - whereas similar protein grain at Russia's grain ports have been sold and placed on bulk carriers 167 U.S. dollars tonne, including terminal fees, Whitelaw said.

The fallout of the U.K.'s referendum to leave the European Union is also adding further competition to Australian producers.

The over 13 percent fall in the British Pound since Brexit to reach 31-year lows against the U.S. dollar - 1.29 U.S. dollars at 10:09 local time on Thursday (AEST) - has the United Kingdom becoming a player in the Asian region. 77,000 tonnes of wheat from the north of England is currently on route to Vietnam, while another 55,000 tonnes of grain is scheduled to leave for Indonesia in planned for the end of July.

"The Pound is enduring broad-based declines... (and) there is little to stop the pound's slide," Commonwealth Bank of Australia currency strategist Peter Dragicevich said.

"The headwinds of a weaker U.K. economy, Bank of England policy easing, political uncertainty and large current account deficits should continue to weigh on the pound over the medium-term."

A spokesman for Australian Agriculture Minister Barnaby Joyce told Xinhua the Australian government is undertaking a number of measures to make its agriculture exports more attractive in the highly competitive market, including a push for better market access.

"We are currently negotiating a free trade agreement with Indonesia - our largest wheat export market," the spokesman said, adding reducing tariffs make Australia's wheat more competitive and attractive in its established markets.

Authorities are also directly assisting farmers to manage the commodity price variability by strengthening the Farm Management Deposits Scheme, a financial management scheme that assists with uneven income.

The offshore factors are likely to hit Australian producers in the short term due to the selling model they most likely are under, waiting to lock in prices at harvest rather than hedge, establish forward contracts and risk not making the crop.

"There's not much opportunity for anywhere else in the world to have any supply issues, so we'll be in this high supply period for (potentially) the next 12-months," Whitelaw said.

"At this point, there's nothing really on the radar that can help prices... we need a (crop) disaster somewhere." Endit