Grain market complacency could bite

"Current global prices may be too complacent, given the political and seasonal risks around the world," Rabobank associate agricultural analyst Edward McGeoch said.

He said while there was a temporary oversupply of grain in the market at present it would only take one event, such as the collapse of the fragile Black Sea Grain Initiative that brokers the safe passage of grain out of Ukraine, to send markets back up.

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"There are a myriad of potential issues are bubbling away, with the obvious one the Black Sea grain corridor collapsing during Ukraine's export season, but also Canada is becoming hot and dry, Argentina and the US remain dry and we now see Australia also becoming drier," he said.

Rabobank data shows global wheat prices have collapsed 58 per cent from record levels seen in March 2022, although Australian wheat prices have held up comparatively well, dropping just 20pc in the period, albeit from lower levels.

Gerry Karam, head of institutional food, beverage and agribusiness at ANZ, agreed there was a lot to play out in the year ahead.

"The biggest question marks at the moment are around wheat production levels in both hemispheres, as well as ongoing uncertainty around Ukrainian exports," he said.

Mr McGeoch said local seasonal conditions would play a major part in setting the difference between Aussie and international values.

"Whether the local wheat prices continue to hold up well despite the global price decline depends on the outcome of local production." "If Australian wheat production is more favourable than expected, basis could decline to negative levels."

Globally, the bank forecasts Chicago Board of Trade (CBOT) wheat to trade on average between US624 cents a bushel and US683c/bu over the next 12 months, but upside above this range could be possible.

On Friday the near term CBOT wheat futures contract sat at US610c/bu.

Locally, Australian Premium White (APW1) wheat track prices are expected to trade, on average nationally, between $340 and $380 a tonne, slightly lower than cash bids at present, which sit at around $400/t port, although Mr McGeoch said this could change if it became seriously dry.

On the barley front he said the major point of interest for Aussie growers was the outcome of negotiations to lift Chinese tariffs.

Should the status quo remain, Rabobank believes Australian feed barley will continue trading at an above average discount to wheat over the next 12 months, on average nationally between $230-270/t track price.

The high premiums seen last year for malt barley should not be expected in the current season with less weather downgrading likely.

After a big couple of years canola pricing is also expected to come back closer to historical averages.

Rabobank forecasts Australian national non-GM (genetically-modified) canola prices to trade, on average between $560-670/t with discounts for GM canola of around $20-50/t.

Mr Karam said the combination of uncertainty in the Black Sea and the weather concerns in the US in particular meant there was room for market upside.

"While the exports of grain from Ukraine have now continued relatively smoothly under the Black Sea freight corridor deal Russia has continued to raise the prospect of the agreement ceasing at some point in future."

"Should this happen, global grain prices could well see strong upward pressure.

"In addition to the fall in Ukrainian production levels, the US is also facing a concerning forecast for its wheat crop.

"In the US, last year's high wheat prices have seen a major jump in wheat plantings, in many areas which would normally have planted corn."

However he said this punt on wheat had not been successful due to dry weather.

"Recent updates on the impact of drier weather increasingly point to a decline in the percentage of planted acres which will be harvested to around 67pc, the lowest harvest ratio since 1917."