Short stocks create grain demand

18 Jun, 2015 02:00 AM
The rain will certainly ease immediate Aussie weather concerns in the market

THE lack of grain stocks in eastern Australia is providing a solid platform for Aussie prices in spite of a falling world market.

Prices are still up over $300 a tonne for old crop wheat, with the basis, the difference between Australian and US futures prices, sliding out to a whopping $A66/t.

But the situation is delicately poised, with the drought premium embedded in the prices likely to disappear should follow up falls to this week’s good rain improve crop condition.

ProFarmer senior analyst Hannah Janson said her business had been hearing of grain buyers having difficulties in getting hold of supplies.

“We are hearing more and more of it becoming increasingly difficult for domestic end-users to source grain in many areas of the east coast of Australia,” she said.,

Traders are reluctant to sell old crop grain unless they are able to

cover it through buying new crop.

To do this, however, they would have to attract growers to new crop contracts.

“Growers are also understandably reluctant sellers of 15/16 crop given many areas are dry and heightened talk of an El Niño is weighing on confidence in many areas of eastern Australia,” NZX general manager Nathan Cattle said.

They are also taking no risks on remaining old crop supplies.

“The seasonal risk means many growers are not only avoiding forward sales but also hanging onto any remaining old crop grain as a drought hedge,” he said.

GeoCommodities principal Brad Knight said farmers in south-eastern Australia were generally hanging on to any old crop supplies they had.

“There is an element of looking for a drought premium, but also many mixed farmers see little feed leading into winter and are looking to ensure there is feed for animals.”

He said forecast rain this week could alter this dynamic somewhat.

“The rain will certainly ease immediate Aussie weather concerns in the market.”

Mr Cattle said end users were being very competitive in trying to source grain, paying prices on her company’s Clear Grain Exchange above the indicative bid in order to win supply.

He said it was a tough decision for growers on whether to sell existing stocks now.

“The dilemma for growers is it is a sellers’ market now but for good reason: production uncertainty,” he said.

“Yet if we get more production certainty and feel comfortable to sell, the market power may shift back towards the buyer potentially forcing values lower.”

Ms Janson said if growers wanted to factor in a risk premium they could simply offer the product on a platform such as clear for the price they were comfortable with.

“If the bid is $295/t but you want $310/t, just put the higher price up and see if it attracts any attention.

“This way people can capture the supply before it dissipates without exposing themselves to too much risk.”

Mr Knight said stocks were certainly tight, but said there was still grain around.

“There are definitely stocks there, you might see some of the smaller concerns struggling to find supply, but it is definitely out there.”

He said the strong domestic market was insulating the Aussie grain market from the weakness in the international arena, largely caused by last week’s US Department of Agriculture (USDA) report which was largely interpreted as bearish for the market.

The major bit of negative data was a higher than expected US stocks number that weighed heavily on the major international futures exchanges.

Mr Knight also said northern hemisphere product estimates were generally strong, creating further cause for wheat prices to devalue.

However, there were a couple of flash points to watch.

“It has been very dry in India and they will be an importer, rather than exporter of wheat which is important.

“There are also some potential weather concerns in the US and Canada, but they are yet to really play out.”

Australian grain prices fell sharply on Monday following a good rain band through eastern Australia and the potential for rain in WA later this week.

ASX wheat futures were trading at $295/t on Monday while on Clear, grain traded in the Port Kembla zone at $302/t.

Gregor Heard

Gregor Heard

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


Jock Munro
18/06/2015 6:20:21 AM

Perhaps in the deregulated market place, end users should get in at harvest time and secure their needs instead of undertaking a hand to mouth existence!
18/06/2015 12:12:12 PM

Agreed. Sometimes you've got to shake your head at how domestic end users manage their requirements, screaming blue murder when it's expensive or simply not there any more.
18/06/2015 7:00:19 PM

Yes, Jock, I think the end users may well be regretting the loss of the single desk! Remember when the Pool held wheat for up to two years with all finance and storage costs paid for by the grower. So all the end user needed to do to secure supply was to out bid export parity.
Jock Munro
23/06/2015 11:56:22 AM

Yes PT,we even held stocks for our foreign customers. The merchants have no obligation to the domestic market or to anything but their own profits. What a gift Labor and Liberal gave to them.! There will be a day of reckoning on the domestic front when we have a really serious drought
Mock Junro
23/06/2015 12:12:20 PM

Stocks data be transparent and freely available to allow all parties (growers and end users) to make better decisions on when to buy / sell their grain. It eliminates the uncertainty traders rely on to create margin.
Jock Munro
24/06/2015 10:18:50 AM

So Mock you want free market arrangements with certain adjustments to make it better for the merchants. The mega merchants on the other hand thrive on the fact that they hold more information than the majority of players. Text book theorists never cease to amaze. Do you represent a small or large merchant Mocker?
3/07/2015 1:32:45 PM

Hey Jock, your comments on this article are a bit contradictory to the usual garb. This article shows the opportunities that are now available to all Australian growers who are bold enough to take them. The single desk (God Rest It) no longer distorts the market by incorrectly carrying stocks for end users either here or there. Stop crying about it on here and go and take some of the profits for yourself !
Jock Munro
10/07/2015 5:30:04 AM

So ATB ,looking after your customers best long term interests is distorting the market! Please explain.


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