WITH the size of the Western Australian crop this season, we are starting to see prices come under pressure as we move into the peak harvest period.
Prices are significantly lower than the highs we were seeing in June/July post Russia's invasion of Ukraine, especially on feed grains.
- Subscribers have access to download our free app today from the App Store or Google Play
With war continuing in the Black Sea, fundamentals still look strong, so the dilemma for growers is whether to sell into the weakness or hold and hope for higher prices later in the season.
Some major factors that I think will influence the market this season and what could push prices higher or lower from the current levels.
War in Ukraine
With the Black Sea corridor renewed, prices are acting as though the markets are going back to normal, but there are still significant challenges for exports while the war continues.
Firstly, a lot of the exports from Ukraine are corn not wheat and a lot of what is being exported is stock that was at port prior to the invasion.
With a lot of internal logistics damaged and resources being directed to the war, it will be more difficult for Ukrainian farmers to get their grain to port next harvest.
The war has made everything more difficult and expensive for Ukrainian farmers, so the 2023 season production is also likely to suffer.
Russia has plenty of grain to export, but with the sanctions in place there are limited destinations that Russian grain is now going to.
Western banks won't take payments from Russian exporters and a lot of the major ship owners won't carry Russian cargo, so this has significantly affected the reach of Russian grain.
There are now very limited amounts of Russian wheat making its way in Asia to compete against Australian grain.
The worst-case scenario is a nuclear attack or accident.
This could contaminate grain produced in the Black Sea region for generations.
If this was to happen, everything in the market would change and the price of Australian grain would likely reset at a much higher level.
Post-COVID global economy/currencies
High inflation and slowing economies are starting to have an impact on the demand for grain.
Bread is a stable food in many western countries but more of a luxury in Asian countries which can switch back to eating more rice if the price of bread gets too high.
The same is true of meat - in most countries eating meat is a luxury so in difficult economic times demand drops, which has a flow-on effect to feed grains.
The currency can also affect grain prices.
We have seen a stronger United States dollar as the US Federal Reserve increases rates to try to slow inflation.
A higher US dollar/lower Australian dollar is good for Australian farmers but can be bad for consumers who must buy the grain in US dollars, even though their local currency has depreciated against it.
Chinese demand
China dominated Australian wheat exports last season, taking more than six million tonnes.
The Chinese have already started buying new crop Australian wheat in big volume, with recent estimates that they have bought in the region of 2.5mt for the 2022/23 season.
This will support the local market and has been much-needed demand given the size of the past two Australian crops.
China should be the main market for ASW again, it usually buys ASW with a minimum protein of 9 per cent.
With the recent rain on the east coast, the quality may not meet its specifications, so most of these sales will likely ship from WA.
Australian production/logistics
The production levels in Australia will again outstrip the export capacity of the country.
Internal logistics rather than the actual ports, were the source of most of the issues across the country last year and this will likely be the pressure point again this season.
The recent flooding in New South Wales is already causing delays on the east coast.
Any major delays (or loading improvements) will be quickly reflected into domestic pricing.
The trade will be looking closely at the production versus export capacity of each port zone.
With interest rates a lot higher this season, the cost of carrying grain is very expensive, so the trade will hold off on accumulations for as long as possible.
With the war in Ukraine, it is also difficult to predict what the future will hold for exports, so the trade will be reluctant to buy and hold large volumes of grain unless they have their export pathway secured.
Canadian production
One of the main reasons for the spike in canola prices last season was the drought in Canada.
Canada is back in a big way and will be the main competition for Australian canola and wheat, with Canadian canola production expected to grow by more than 42pc and wheat production expected to rise by more than 55pc year-on-year.
Local canola prices have come well off the highs of last season already.
The Canadians have started exporting large volumes of their CWRS milling wheat, which will compete against Australian AH and APW1.
Freight rates
Both bulk and container freight rates have fallen significantly from the highs of last season.
With exports from the Black Sea so difficult, a lot of the vessel owners are trying to do more business from the southern hemisphere.
This is positive for Australian exporters and farmers as this will make Australian grain more competitive against other origins.
READ MORE:
Container rates also seem to be falling, although lower international rates don't seem to be flowing through to Australia just yet.
These are some of the many things that could impact the Australian harvest this year.
There are some positives and negatives, but overall, it should be another good year for Australian farmers.
Given the awful situation in Ukraine, we are very lucky to live in a country such as Australia.
We wish everyone a safe harvest and enjoyable Christmas break once it is all in the bin.