Floods in Australia threaten wheat supply for bread and noodles

Flooding in eastern Australia is hurting the quality of the wheat harvest in one of the world's biggest exporters, worsening a global shortage of the high-grade variety used to make bread and ramen noodles.

That's going to put a damper on the international wheat market which was counting on a bumper harvest from Australia to ease tight inventories and cool food costs.

While the crop is still likely to be a large one, torrential downpours and floods could turn an unusually hefty chunk of the harvest into grain fit only for animal feed, and reduce the quantity that's suitable for milling into flour.

Quality worries

The quality worries are evident in the widening premium for eastern milling wheat over the feed variety, which hit a record high this month.

The lack of milling-quality grain across the east coast this year means that demand for more general-purpose wheats with lower-protein content is gaining traction, said James Maxwell, senior manager at Australian Crop Forecasters.

"People are like - you know what, I'll make do with what I've got, I just want whatever I can get," Maxwell said in a phone interview.

While Indonesia and the Philippines do buy general-purpose wheats such as Australian Standard White (ASW), where it qualifies as a milling grade, it's not a classification that typically holds a significant premium, Maxwell said.

"It's certainly zero surprise to see the higher proteins go up, but ASW - a little more, because normally ASW is priced a little bit lower," he said, adding that the elevated price could indicate that the market is anticipating a "massive downgrade" of the crop into animal feed.

More wet weather

The impact of the flooding on wheat quality in eastern Australia is still hard to predict, largely because the weather has prevented farmers from heading out into the fields to start harvesting the crops. The weather is set to remain wet across New South Wales next week, according to forecaster Maxar.

With analysts and farmers just starting to get a clearer idea of the "patchwork of good to bad" in terms of the harvest, all signs point to higher prices for any grain that offers the bare minimum in terms of protein content, Maxwell said.

For China, that could prove painful. One of the world's top importers, the country is buying more from Australia than ever. Over 60% of Chinese imports came from Down Under in the first 10 months of 2022, more than double the share for all of last year, customs data and Bloomberg calculations show.

Rains have also slowed the harvest in parts of Western Australia, another huge growing region, where the local industry association is predicting a further bumper crop. For the country as whole, wheat exports could still reach 26 million tons this season, almost three times the amount in 2019-20, when supplies were cut by drought, according to the US Department of Agriculture.