Grain prices continue to slump

25 Sep, 2014 02:00 AM
We're seeing the declining world market, but (also) there is doubt over Australian production

AUSTRALIAN wheat prices dipped markedly this week, and only premiums above international parity in line with severe drought are keeping these prices above the cost of production.

Port prices for APW grade wheat were as low as $250 a tonne in the Albany port zone in Western Australia, following good rain there yesterday, and as high as $307/t in the Brisbane zone, where there is still a shortage of supply following a long run of dry conditions.

This is well above the Chicago Board of Trade (CBOT) price, which in the past week has hit four-year lows on the back of the Northern Hemisphere grain glut.

Yesterday, CBOT December 14 futures were at US476 cents a bushel, which translates to $A194/t based on an exchange rate of US89c to the Aussie dollar. Aussie wheat prices have fallen around $10/t this week to Wednesday.

Analyst Brad Knight, managing director of GeoCommodities, said Aussie grain producers faced a two-speed market.

"It's a conundrum at the moment, we're seeing the declining world market, but on the other hand there is doubt over Australian production, especially in south-east Australia."

However, Mr Knight said ultimately any regional basis created by a shortage of grain on the east coast would only rise as high as import parity.

These imports, he said, were unlikely to come from abroad, but from interstate.

"There was good rain in southern Western Australia this week, and that locks in crop prospects there, while in South Australia they would like a drink, but the signs are still pointing towards a solid crop."

Mr Knight said the fortunes of NSW and Victoria had switched.

After a good start, Victoria is now the epicentre of drought concerns, while late rain in NSW means overall the state should have a reasonable harvest.

Malcolm Bartholomaeus, Bartholomaeus Consulting, said even if the Australian wheat crop continued to get smaller, the world would cope due to abundant stocks. He also hosed down the theory that there would be a good premium for milling wheats.

"It is not so much that the world is short of milling wheat, it is just that the milling component will be a smaller percentage of what is a near record crop.

"The French are exporting milling wheat, and France was supposed to be one of the worst impacted by downgrading due to harvest rain."

Speaking at a Grains Research and Development Corporation farm business update last week, Mr Bartholomaeus said Australian basis was approaching the levels normally reserved for droughts.

"Even in the Port Adelaide zone, which is a pure export zone with no domestic demand issues impacting on pricing, the market is $60/t above Chicago, and that is obviously much higher in port zones with domestic concerns through Victoria, NSW and Queensland."

Mr Bartholomaeus does not expect current pricing levels to endure until harvest.

"I would say a lot of that high basis level is the trade trying to attract sales.

"Farmers in the drier areas have no faith in the finish to the season and as such are not forward selling.

"There is so much shipping booked by the trade that some buyers may consider it cheaper to pay more for grain and be able to execute their shipping slot than default.

"However, the year will pass and the headers will start rolling and farmers will start selling, so I would expect prices to fall at some stage."

Mr Bartholomaeus said the full impact of the world price fall could be seen by comparing CBOT figures.

"Chicago is down over $60/t on the same period last year, it is a massive fall.

"Normally that would be fully reflected in our prices, but we are only $10/t or so down on last year."

Mr Bartholomaeus said feed barley values were holding up well.

"The average spread between APW and feed barley is $65/t, that is back to $35/t at present, so the feed barley price is doing well."

While painting a gloomy picture in the short-term, Mr Bartholomaeus said prices could rebound quickly.

"The major upshot of the Ukrainian conflict may not be felt this year, but next year, when farmers struggle to attract credit to put a crop in the ground and then to buy the inputs necessary."

He also said the low prices would send a signal to producers in swinging production areas, such as the recently developed parts of Brazil and Argentina, not to plant.

"Once you see less acres being planted, you don't need much to go wrong in terms of 2015 production to see prices lift once more."

Gregor Heard

Gregor Heard

is the national grains writer for Fairfax Agricultural Media
Date: Newest first | Oldest first


Jock Munro
25/09/2014 3:58:24 AM

What a lovely dog's breakfast we now have for a marketing system! Perhaps the knowledgeable industry consultants who have so much to say might like to make an estimate of what deregulation is costing growers, regional communities and Australia as a whole. Real industry experts are saying that we are at least $40.00 per tonne out of pocket through the loss of the national pool single desk and its hedging program not to mention the fall in the relative value of our wheat and the supply chain gouging.
25/09/2014 6:36:05 AM

does Mr Bartolomaeus have an opinion on High Frequency Trading as a source of world grain price manipulation? ignoring the fundamentals of supply and demand and effectively setting their price by the algorithims the computers use? stop treating us as fools.
25/09/2014 7:10:18 AM

The call by the multi-national suppliers of GM seed supply, fertilisers and chemicals to feed the world's shortage have sold us a glut! Maybe they can buy up all the surplus grain!
wagga wagga
25/09/2014 8:07:13 AM

Jock, whos out of pocket $40 / mt? the WA farmers or East coast farmers that work very hard to make sure they extract the best quality and yield but neglect to market the end product? There is ample opportunity / competition to market grain without relying on a single desk. Time to embrace the current landscape regarding the grain market(s). Head in the sand at own peril. One point i do agree on is the ability for quality control, however the consumers are dollar sensitive at the end of the day, just ask the Chinese Maltster.
wagga wagga
25/09/2014 8:12:48 AM

wtf - i think that the market is affected by HFT, Commercial and fundamentals = volatility. at End of day the fundamentals drive the trend, maybe when markets over cooked and fundamentals tell you that prices are too high you can use this to your advantage. Its a big bad world out there and we are part of it. A tough gig for the farmers having to rely on mother nature, input management and then markets, but we have to manage the variables as best we can, embracing the market is a good start.
25/09/2014 9:06:42 AM

ww, with respect, u may embrace corruption, I don't. To me we had a marketing structure that insulated us (to a certain degree) from this sort of thing, the way it was disposed of was a sham. Like I said b4, where is the sense in being picked off one by one? are u a grower or trader?
peter blacket
25/09/2014 9:15:48 AM

Finally some common sense, wagga wagga, whether your for or against deregulation makes no difference, this is how it is, adapt.
25/09/2014 9:36:57 AM

Jock, What's your definition of a "real industry expert"?
25/09/2014 11:31:44 AM

How do Jock and the other agrarian grudge economists reconcile their claims that a Port Adelaide price of $60 /ton over Chicago is somehow bad value in the absence of a drought? Numbers mean things that matter to profit and loss businesses such as farming.This particular number is telling farmers that the trade wants their grain now. If producers wait until some distant utopian future where the rules of supply and demand have been extinguished and that only exists in the dreams of farmers like Jock then you shall not be long in the ranks of the grain producers. Stuff J.M, sell and be damned.
wagga wagga
25/09/2014 1:28:29 PM

wtf - corruption i hear you say. Well I think that's how the whole thing fell apart to start with back in 2006,...for the record I don't embrace it at all. In a commercial world you cant be insulated, its not sustainable (in the long run). Embrace the surroundings, there is plenty of opportunity if your up for it and dont look into the rear vision mirror all day, otherwise you might stray
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