Australian Wheat Market Analysis

This assignment delves into the Australian wheat market, analyzing export trends, supply constraints due to reduced production, and potential opportunities for Canadian wheat exporters. It highlights factors like Australian carryout reduction, smaller harvests, and surging U.S. demand driven by drought concerns in spring wheat growing areas. The analysis also discusses Russia's emergence as a major exporter and its impact on global markets.

Running Head: MACROECONOMICS
Macroeconomics
Name of the Student
Name of the University
Author note

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Table of Contents
Summary of the article...............................................................................................................2
Key economic concept...............................................................................................................2
Analysis......................................................................................................................................3
Personal connection...................................................................................................................5
Economic way of thinking.........................................................................................................6
Connection with Economics......................................................................................................6
References..................................................................................................................................7
Appendix....................................................................................................................................8

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Summary of the article
 A forecasted high demand for Canadian Wheat and increased demand for export.
 Reduced production of Australian crop and fears of drought in United States.
 Canadian growers might hold off wheat selling (producer.com, 2018).
 Upsurge in demand from U.S. millers.
 High quality wheat production in Canada.
 Slump in Russian export.
Key economic concept
Agriculture is one of the important sectors in Canada making contribution to
economic growth and employment generation (canadainternational.gc.ca, 2018). Demand and
supply are the two basic and important economic concepts reflected in the article. Change in
any one of the aspect causes a change in market equilibrium price and quantity.
Another related economic concept of the article is export and national income. The
earning from export has a positive influence on national income.
Analysis
Figure 1: Wheat market in Australia and U.S.
(Source: as created by Author)

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The wheat production in Australia in 2017-18 is 20.3 recording a 42 percent reduction
as compared to previous year. Besides reduced production there is a relatively smaller
takeaway from crops produced during 2016-17. As a result of declining production, the wheat
supply curve in the domestic market will shift inward to S1S1. The supply shortage in the
domestic market increases wheat price with reduction in equilibrium quantity (Bernanke,
Antonovics & Frank, 2015). The similar is case for US wheat market following a drought
expectation.
Figure 2: Wheat market in Canada
(Source: as created by Author)
The decrease in supply of Australian crops by five or six million this year will push
the demand for wheats produced in Canada. The U.S department of Agriculture has dropped
its export from Australia by 2.73 million and forecasted for an even larger drop of five or six
million. Additionally, growing demand from US millers will give upward pressure on
demand. The increase in global demand leads to an outward shift of the wheat demand curve
causing price and quantity of wheat to price.

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Figure 3: Export and National income
(Source: as created by Author)
National income in an economy is determined from aggregate demand and aggregate
supply. Of the four components of aggregate demand net export is one important aspect
(Uribe & Schmitt-Grohé, 2017). With increase in wheat export, the aggregate demand curve
will shift outward to AD1. This will increase the national income from Y0 to Y1 and price level
from P0 to P1.
Personal connection
Agriculture is one of the important sector for every nation. Every citizen can relate to
this sector. Being a Canadian citizen the agricultural outlook is important for me. High
demand not only raise national income but also raises the price level. Increasing price level
will affect every citizen.
Economic way of thinking
The marginal cost is measured from the supply curve and marginal benefit is reflected
from the demand curve. The reduction in Australian and US wheat supply indicates an

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increase in the marginal cost and hence raises price in these countries. The marginal benefit
to Canadian farmers increases from the increased demand of wheat. This encourages famers
to supply more wheat.
Connection with Economics
One of the basic economic question is what to produce, how to produce and for whom
to produce. The increased marginal benefits to wheat farmers encourage them to move more
resources in growing wheat. The agricultural production should always be given priority and
hence answering one of the primary question of basic economics. Finally, the benefit to
farmers will lead to social or national welfare by raising national income through export
earnings.

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References
Agriculture. (2018). Canadainternational.gc.ca. Retrieved 28 January 2018, from
http://www.canadainternational.gc.ca/eu-ue/policies-politiques/agriculture.aspx?lang=eng
Pratt, S. (2018). Maybe hold off on selling that wheat - The Western Producer. The Western
Producer. Retrieved 28 January 2018, from https://www.producer.com/2018/01/maybe-hold-
off-on-selling-that-wheat/
Bernanke, B., Antonovics, K., & Frank, R. (2015). Principles of macroeconomics. McGraw-
Hill Higher Education.
Uribe, M., & Schmitt-Grohé, S. (2017). Open economy macroeconomics. Princeton
University Press.

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Appendix
Article
Maybe hold off on selling that wheat
Reduced supply and lower exports for the 2017-18 crop year
By Sean Pratt
Published: January25,2018
Canadian wheat should be in high demand this year because 2017 was an exceptional
year for quality. | Richardson International Ltd. photo
A 42 percent reduction in Australia’s crop and drought fears in the United States might
increase Canada’s exports
Growers might want to consider holding off on selling their wheat until the tail end of the
crop year, says an analyst.
“A large part of the FarmLink strategy right now is to hold a block of wheat back into that
time frame,” said Neil Townsend, senior market analyst with FarmLink Marketing Solutions.
“We think there will be a marketing opportunity in the last quarter of the marketing year.”
That is when he expects Australia will run out of crop to sell. Australian farmers grew 20.3
million tonnes of wheat in 2017-18, down 42 percent from the previous year.
In addition to reduced production this year, there was a smaller-than-expected carryout from
the 2016-17 crop.

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The U.S. Department of Agriculture recently dropped its Australian 2016-17 carryout number
by 2.73 million tonnes based on new statistics from the Australian Bureau of Agricultural and
Resource Economics and Sciences.
It all adds up to reduced supply and lower exports for the 2017-18 crop year.
“With an Australian program that’s five or six million tonnes less than last year, Canada
should pick up a portion of that. That should sustain us,” said Townsend.
The USDA is forecasting an even bigger drop with Australian exports falling by 6.6 million
tonnes.
“That’s where we might pick up a few extra cargoes in the last three or four months,” he said.
Townsend also expects surging demand from U.S. millers toward the end of the 2017-18
campaign because of mounting concerns about drought in the spring wheat growing area for
the upcoming crop year.
The latest map prepared by the U.S. Drought Monitor shows moderate to severe drought
throughout much of the Dakotas and northeastern Montana and extending into southern
Saskatchewan.
Millers could get nervous if drought conditions are still around come spring planting, which
could prompt them to buy some 2017-18 Canadian spring wheat to offset the risk of a poor
crop in 2018-19.
Townsend said Canadian wheat should be in high demand because it was an exceptional year
for quality. Based on the Canadian Grain Commission’s harvest sample program, 77.5
percent of the spring wheat crop made the top grade and 91.3 percent made the top two
grades.
“There should be buyers out there interested in Canadian wheat,” he said.

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FarmLink is forecasting 16.7 million tonnes of wheat exports in 2017-18, up from 15.6
million tonnes last year. Agriculture Canada has a higher estimate of 17.2 million tonnes.
Bulk wheat exports through week 23 of the current crop year are 544,500 tonnes ahead of the
previous year’s pace.
Townsend said exports will need to maintain the same pace to meet FarmLink’s forecast but
they have been slowing of late due to intense competition from Russia.
Russia is poised to take over as the world’s leading exporter of the crop in 2017-18. The
USDA is forecasting the country will ship 35 million tonnes of wheat. The next biggest
competitor will be the European Union at 27 million tonnes.
Russian farmers harvested a record 85 million tonnes of wheat, up 17 percent from the
previous year’s record.
Townsend said mid-tier Russian wheat is making big inroads into markets like Indonesia,
Peru, Mexico, Nigeria and Bangladesh.
“They’re omnipresent now,” he said.
“They have gradually converted people over to their combination of quality and price.”
Russian exports usually slump in the November through January period due to bad weather
conditions but it has been an unseasonably warm winter and with upgrades to port facilities,
wheat is still being shipped.

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