Monday, May 9, 2011

Domestic market factoring in continuing WA dryness.

Okay, so everyone knows that after 16 years Fremantle still isn’t respected in the football community, and that it has been dry in Western Australia over the last several months! La Nina seemed to be weakening through April (and forecast to be neutral during winter), however its effects are still lingering. While WA growers currently dry sowing the majority of their crops, there is continuing evidence that rainfall over the next three months will likely be lower then normal over WA.

The market is already adjusting a premium in WA for this prolonged dryness. Just a month ago, Kwinana 2011/12 wheat prices were at a $28/t premium over Geelong, currently this premium has increased by $10/t to $38/t. Canola which is more susceptible to autumn dryness, the premium has ballooned out more. Four weeks ago Kwinana premium was $25/t; now this has increased $17/t to $42/t.

So far in May, Merredin has hovered around 25 degrees (5 degrees above average) with only 5mm recorded since the start of March. But the question is, is it unseasonal? A quick look at past April long range forecasts actually shows that this years forecast is really no different to other years. Additionally, this year’s average summer fallow rainfall (weighted by wheat area) is in fact the highest in 4 years (with good rains in Geraldton and Esperance zones)!

Large wheat crops of the past have been produced on less fallow moisture. Clearly the critical determinant of WA’s wheat crop is in fact in crop rainfall (GSR). If an average of 300 mm is received over April-October, one can expect a crop of 9- 11mmt. 250 mm is likely to produce 8-9 mmt, but only 150 mm (like last year) will produce only 5mmt.

If only 100 mm of rain were to be received over May/ July—then these crops would have a deficit in GSR of 70-100 mm at the start of August. Over the past 30 years, the years where an average of only 100 mm has been received through May-July were : 2000, 2002, 2007 & 2010. (In 2006, only 71 mm was received). All of these are drought years. So at this early stage of the season, are the long-range weather gurus at the BOM indicating another back to back drought in WA?

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