DECADE-low production due to drought will keep Australian grains and oilseeds prices higher well into next year, according to Rabobank’s November Agribusiness Monthly report.
While Eastern States drought regions have received major rains, in terms of winter crops production, it was a case of “too little, too late”, according to the report.
The resultant price disparity between grains in WA compared to ports in the Eastern Sates will continue to see a flow from west to east, it said.
Rabobank senior grains and oilseeds analyst Cheryl Kalisch Gordon, said interest was in how low grains and oilseeds production would actually be in New South Wales, Queensland, Victoria and South Australia this season.
“We forecast a total winter crop near to 29 million tonnes, down 23 per cent year-on-year and 30pc on the five-year average,” Ms Kalisch Gordon said.
Of that total, wheat is expected to comprise 16.8mt, down 21pc year-on-year and 32pc on the five-year average, she said.
WA’s harvest is expected to produce 52pc of that national wheat production.
Compared to grain growing regions over east, WA’s Wheatbelt faired well with the Geraldton region receiving less rain than last year but on par with the five-year average and the Esperance region is well above last year and the five-year average, the report stated.
A start to harvest coupled with a marginal weakening of global prices, had softened local grains and oilseeds prices “moderately”, Ms Kalisch Gordon said.
APW at Newcastle “found” $437 a tonne by the second week of November, down 7pc month-on-month and $373 at Adelaide, down 1.7p month-on-month.
But prices across the country remained up year-on-year, with increases ranging between 38pc at Kwinana and 66pc at Geelong, she said.
The report’s data breakdown showed the Australia Securities Exchange (ASX) East Coast wheat price as at November 9 at $427t compared to $441t in October, but compared to $275t at the same time last year.
It showed Australian canola’s price on November 9 at $865t, compared to $858 last month and $989t last year.
While not helping production, favourable though not drought-breaking rains in parts of central and northern NSW and southern Queensland had eased price pressure on feed grains for livestock, Ms Kalisch Gordon said.
But rainfall has been patchy and the three-month forecast is not favourable, so expectations for sorghum production were in the order of 1.5-2mt.
This volume was unlikely to damage prices, she said.
Ms Kalisch Gordon pointed out Australian grain prices continued to trade substantially above export parity.
The Chicago Board of Trade (CBoT) price was expected to remain above US500c a bushel through the first quarter next year, with markets supported by “tightened global fundamentals”.
During the second quarter next year the CBoT price was expected to fall back to 490cbu on expectations of expanded northern hemisphere plantings.
While this may “drag” on local prices, domestic factors such as reduced production will keep any softening of Australian prices “in check” and they will remain at “elevated ranges” well into 2019, Ms Kalisch Gordon predicted.
But there are aspects needing close attention and grain quality may be one.
The quantity of grain being delivered by segregation will be closely scrutinised, especially by local end users, she said.
The strength of the Australian dollar, which broke from its 2018 downward trend in early November, was also “critical” to whether international grain imports stack up.
READ MORE:
Any movement above US73 cents will prompt recalculations on sourcing grain in 2019, Ms Kalisch Gordon said.
With prices set to remain firm for grains and oilseeds, there may be little relief on input costs, according to the report.
Slower demand has forced the global benchmarks for Diammonium Phosphate (DAP) fertiliser down MOM, in Australian dollar (AUD) terms, for the first time since May.
The DAP benchmarks eased by 2pc, according to the report.
The AUD-adjusted DAP price peaked at $620t Free On Board (FOB) in the United States in early October – its highest price in three years – before falling to $590t in early November.
But demand is typically lower at this time of year and with Brazilian crops planted, the focus shifts to orders for northern hemisphere spring crops.
Rabobank expects demand and prices to remain firm at least until into February.
The AUD-adjusted global urea benchmarks finished up 3pc MOM, according to the report.
After a mid-month spike, urea prices followed the trend of phosphate over the last fortnight in October and fell $33t to $452tonne FOB in the Middle East in early November.
The report said expected price pressure from India did not occur and urea prices were expected to remain firm, with demand and supply well balanced.
It predicted higher fertiliser prices generally over the coming 12 months, primarily driven by elevated demand as a result of higher crop prices.