Crop swap opens new markets

30 Mar, 2015 01:00 AM
We’ve been seeing this trend in the US for a while, wheat is losing acres to corn and soybeans

AUSTRALIAN wheat producers may have more opportunities to market their grain given key competitors are switching out of wheat in favour of other higher yielding crops.

Sterling Liddell, senior vice president of agribusiness research with Rabobank in the United States, said many croppers in what was previously wheat’s heartland on the US Great Plains were now increasingly looking to corn as their major cash crop.

“We’ve been seeing this trend in the US for a while, wheat is losing acres to corn and soybeans.

“The rationale is simple, you can just grow so much more corn than wheat.”

And he said it was not just a US story.

“We’ve seen corn go from a relatively minor crop in a country such as Ukraine to around a third of their grain exports now, so those acres have to come from somewhere, and its generally from wheat.”

Gap in the market

Even more heartening for Australian producers is the type of wheat the US is dropping from its rotation.

"We have cut back on producing middle level protein wheat (our commodity wheat), so we have not had enough wheat to meet our own demand," St Louis, Missouri-based Mr Liddell said.

This wheat was often in direct competition for space into South East Asia with Aussie wheat such as APW.

"The US will have less effect globally in exports, providing an opportunity for others to grow if they can effectively target markets."

Mr Liddell estimated overall the US was planting around one per cent less wheat.

“It doesn’t sound like a lot, but when you think of the massive size of the US plant, it adds up.”

He said traditional wheat States, such as the Dakotas, were increasingly turning to corn and soybeans, while some of the drier states had recently gone back into malt barley at the expense of wheat.

Dryness coming into play

A lack of rainfall in both the US winter wheatbelt and through the Black Sea have the potential to boost grain prices this season, analysts say.

Mr Liddell and Graydon Chong, Rabobank Australia senior commodities analyst, both said the decline of the Australian currency against the US dollar was very beneficial for growers, especially those who do not need substantial inputs.

“It’s just so substantial, the changes in currency can influence the break-even cost of production so markedly,” Mr Liddell said.

He said it was likely to continue, with energy prices to remain low.

“We’re starting to talk about crude oil prices of around $60 a barrel as the new paradigm. When energy and commodity prices are low, the US dollar is generally strong.”

However, he was quick to point out that the USD-AUD exchange rate was not the 'be all and end all'.

“The US is not Australia’s only competitor, and you look at exchange rates against currencies like the euro or the Canadian dollar and the move has been nowhere near as extreme, if at all.”

Confidence boosters

Along with the dry conditions in the US at present, Mr Liddell said the gradual easing of wheat acres in the US was due to a combination of improved varieties and confidence through multi-peril crop insurance (MPCI) that means producers are willing to grow corn and soybeans in areas previously considered too dry or too cold, where wheat formerly reigned.

Mr Liddell said this year he expected soybeans to be the favoured crop in the hunt for acres.

“Prices are above that 2.4 times higher than corn that generally acts as a price signal.”

While Australia’s major oilseed crop - canola - has seen prices stagnate, Mr Liddell said soybeans remained in demand both domestic ally in the US and in China due to strong demand for soymeal.

A big South American soybean harvest is predicted, but he said given soybean stocks are at historic lows, the market is likely to be able to absorb the crop.

In terms of the crop condition in the US, Mr Liddell said there had been good pre-planting moisture in many winter wheat areas, but a rainfall deficit in the early spring.

“We’re also concerned with a lack of snow cover in some areas, which may result in a winter kill.”

Black Sea picture

Meanwhile, Mr Chong said this year may be the year the real fallout of the geopolitical instability in the Black Sea will be felt most acutely.

“The crop was in the ground when the problems began last year, this year farmers have to find money for inputs, which is an issue when the currency, particularly in Ukraine, has devalued so much.”

In previous years where Black Sea farmers have been unable to put sufficient nutrition on their crops, yields have come back as much as 30pc, according to Mr Chong.

As well as that, he said climatic factors were not favouring the Black Sea.

“It’s been quite dry there so far, so although we see them longer term being a really big player in global grain markets, this may not be their year.”

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31/03/2015 9:15:03 AM

One reason US farmers are favouring corn and soybean over wheat is that the first two industries have embraced the advantages of GM technology whereas the wheat industry chose to stay in the 20th century and reject the new. RR soy and corn have enabled the farmers further north to get their crops in earlier without the longer ground preparations required for the conventional varieties of the same species. These agronomic advantages of GM are often overlooked when the focus is solely on the GM trait, like in crop weed control.


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