This article is sponsored content from Agfarm.
Everyone loves a wrap of harvest, right? A summary of what has happened over the past few months. Whose predictions were correct and whose weren’t. What the top prices were and why they were there. That’s all good and well, but what do we do now? We have the smallest crop in the last 10 years on our hands, so where is it going to go and how much are market participants going to pay for it? That is the million dollar question! And while we can’t predict the future, we can look into the factors that will influence Aussie grain prices for the short to medium term.
Let’s start with the wrap
The Australian harvest is done and dusted. As expected, WA had an overall outstanding season resulting in the second biggest crop ever harvested. The east coast however was not so fortunate suffering extreme drought throughout the entire growing season causing Australia’s final yield numbers to plummet compared to both last year and the 10 year average. Wheat production is currently at 16.8MMT, down from 21MMT last year and the 10-year average of 24.5MMT. Barley production is at 8MMT, down from 9.5MMT last year and the 10-year average of 8.8MMT.
From a global perspective and something we’ve explored in the past, key growing regions around the world have seen falls in both wheat and barley production. Global wheat production has dropped close to 30MMT year on year with production sitting at 734MMT (figure 1). Global barley production has dropped 3.5MMT year on year with 2018/19 production at 140.50MMT (figure 2). This has caused countries like the EU, Russia and Australia to slow exports. The shortfall of exports, particularly wheat, are likely to be redirected to the US which is helping support the Chicago Wheat Futures price (figure 3).
On top of unavoidable global production issues, there are political issues at play. The current US and China trade war tensions continue to mount, a result of minimal progress to reduce the high tariffs between the two nations. This has caused US agricultural commodities to be more expensive in China triggering cheaper origins of grain, such as Argentina and other parts of South America, to gain a foothold for soybeans and wheat exports into China. This again means global wheat exports are being rationed back to the USA and Black Sea regions keeping prices well supported in these areas.
The short to medium term
Australia is expected to export only 9MMT of wheat this year compared to 17.5MMT five year average. However, early figures show it is flying out the door in Western Australia. As it stands, there is 1.9MMT of wheat on the WA shipping stem, which is over 20 per cent of Australia’s expected wheat exports for the year. The strong shipping pace has been fuelled by Western Australia’s ASW prices still being competitive both into the South East Asian markets and also competitive against delivered markets along the eastern seaboard domestic markets. The strong shipping movement is whipping exporters, traders and domestic consumers into action as they scramble to book grain and comfortably cover their 2019 requirements, causing wheat and barley to remain well bid.
Another looming factor in Aussie grain prices is the pending sorghum crop. With last year’s late break in weather the rush was on to get as much sorghum in the ground as possible. Due to the limited amount of winter crop planted, there were plenty of acres to fill. The crops potential is high with some participants speculating a possible 2MMT crop, with the right conditions. Although there has been some follow up rain in certain sorghum areas, the east coast is still in drought, putting stress on the crop. A crop that is much needed to help relieve the tight stocks of wheat and barley for the east coast consumer. This has added to the east coast’s stressful outlook and will likely lead to continued support for Australian grain prices.
An added and not so unexpected factor contributing to the rise in grain prices over the last few months is the lack of grower engagement with the market. Discussions on the grape vine show there is a general feel of upside in the market so farmers are holding onto what stocks they can, and why wouldn’t you. Why would you sell all your grain now when you believe your profit margin will go up? This lack of engagement is seeing traders pay over their bid in most post zones to secure required grain, again supporting Aussie grain prices.
What will happen next?
As we said earlier that’s the million-dollar question and unfortunately, we can’t predict the future. But based on current events; global and local short supply, political issues between the US and China, weather drying up sorghum prospects and solid demand from the industry there is a solid bid tone in the market, and it is likely to continue through the first half of 2019.
Agfarm Advantage March 4 is a deferred grain sales program designed to separate your grain marketing and cashflow needs by providing you with multiple payment options, and then selling your grain post-harvest outside of harvest pricing pressure and into the northern hemisphere weather risk period. This is a time when grain participants speculate on global production which can cause price rallies. For more information on how Advantage March 4 works and to see previous years outstanding results, visit the webpage www.agfarm.com.au/march4 or call Agfarm on 1300 243 276.
- This article was written on January 16, 2019 and reflects conditions at this time.
This article is sponsored content for Agfarm.