With farms looking dry across the world, grain prices are remaining buoyant

Wheat and canola prices continue to look buoyant and promising, while the future of barley markets will hang in the air until China reaches a decision about its Australian anti-dumping tariffs.

Chicago Board of Trade wheat prices are forecasted to trade between US 624 cents per bushel and US683c/bu over the next 12 months, according to a recent Rabobank report.

Given a dry outlook, Rabobank expects to see low production in some key export markets - and is predicting lower than what the United States Department of Agriculture estimated in its May outlook.

This year's global production isn't looking fantastic, with Canada and Australia drying and US winter wheat in poor condition.

Ukraine continues to struggle to plant and export wheat, given the war on its doorstep, while Russian wheat is expected to decline 10.5 million tonnes in 2023/24 compared to its record year just passed.

According to Rabobank, the only positives for supply is the European Union's crop which is expected to be up four per cent compared to last year when harvested in June.

Locally, if conditions continue to dry and Australian crop is of an average size, Rabobank believes it won't be "unrealistic" to see basis levels remain at positive levels for a large portion of the year.

"We expect APW1 track prices to trade on average between $340 a tonne and $380/t

nationally over the next 12 months," the report said.

APW1 prices have held up well in comparison to global wheat prices, and on May 12, prices were only 2pc lower than they were in March 2022 - despite Russia having just invaded Ukraine (which increased global wheat prices).

Despite prices looking good for Australia, almost 40pc of last year's wheat harvest remains unsold.

Rabobank cautioned this may be a problem if the market receives a shock - such as the Russia-Ukraine war ending - that rapidly decreases prices.

"If there is a large bearish shock to markets, farmer selling pressure on pricing could be considerable," the report said.

Rabobank argues that markets have become too complacent about the current political environment, with traders assuming the Black Sea Grain Initiative will continue to be honoured and re-signed.

"The market believes that just because Russia signs an agreement, it will always abide by it," the report said.

"The global trade environment prior to the war in Ukraine and prior to COVID-19 has changed substantially, and markets are yet to adapt."

Questions continue to hang in the air about the future of barley trade with China, given recent announcements that China may lift anti-dumping tariffs with Australia.

However, Rabobank doesn't seem to be as optimistic that these talks will come into fruition any time soon.

"It is possible that China's move was simply an insurance policy in the event it cannot obtain sufficient malt barley from Canada or Europe due to poor crops and/or an insurance policy from a feed perspective in the event Brazil's second corn crop (currently growing) also deteriorates," the report said.

The scepticism is derived from the fact that July, when China is set to make a decision about Australian tariffs, is when it will become clear how the rest of the world is travelling - and whether China will need Australian barley.

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By July, Brazil will be halfway through harvest while Canada will be one to two months away.

"The end of the fast-tracked discussion falls perfectly in-line with when there will be more clarity on alternative grain-sourcing options for China apart from Australia," the report said.

If China was to come back, Rabobank believed it was plausible that feed barley would trade $33/t higher on average across the country.

If the tariffs are not lifted, it can be assumed that feed barley will, on average, continue to trade at a $77/t discount to wheat across the country over the next 12 months, between $270/t and $340/t nationally.

Heading into the European Union June/July canola harvest, which is expected to be up 3pc year-on-year, which sets up Australia's largest customer with a strong supply base.

Canada, the world's largest supplier of canola, is planting - but 83pc of total canola area (in Saskatchewan and Alberta) is looking dry.

"If, as a result, Canada's crop is poor, it may support global prices moving into 2023," the report said.

This, combined with new canola crushing facilities which are forecasted to come online in late 2023, create a bullish canola market.

Rabobank forecasts national non-GM canola prices to trade on average between $560/t and $670/t over the next 12 months, with GM canola trading at a $20-$50/t discount.

The canola market is currently well-supplied following last year's high, and the global outlook continues to forecast strong crops for this season.

Prices have significantly fallen from their 2022 highs, which peaked at about $1100/t.

This peak was a result of a below-average European canola crop for the third time in a row, along with a small canola crop from Canada.

Brazil and Argentina also had 6pc decreases year-on-year to their soybean crops, while Ukraine was invaded by Russia.

Since then, global markets have rebounded with large crops from Australia, Brazil, Europe and Canada.

As of mid-May, non-GM canola is trading in the low $600/t range.