Agfarm World Market Update February 2016

Australian Conditions

In line with the 10-year average, sorghum production for NSW and QLD is set at 2.2MMT for the 2015/16 season. This is a year over year increase of 100KMT. Pre and post plant rainfall in Southern QLD, along with warmer weather has brought forward the harvest program for that region, while Central Queensland currently has planting underway. NSW acres are slightly down due to dry pre sowing conditions, although the majority of 2016 has seen above average rainfall.

 

picture1

 

The China Factor

Over the past three years, sorghum has been well supported by export demand into China. This buying spree caused a premium being paid to Australian growers for sorghum and was largely responsible for the 1.6MMT exports we saw in the 2014/2015 season. Unfortunately, what goes up, must come down, which we have started to see this season.

Why has China stopped buying?

China has seen huge corn production over the past three years due to a high priced Government support system. The price supports have led to local stockpiles in excess of 250MMT, putting pressure on the Chinese Government to curb feed grain imports ensuring domestic consumption of local corn.  Therefore, Australian sorghum exports to China are set to decline. The current market, along with the shipping line up is showing exports for the 2015/16 sorghum season being only 37.5% of last year at around 600,000MT. The second quarter will be important for Australia as we will need to find export demand before the new US sorghum crop comes online in June/July, potentially adding competition to Global sorghum exports.

Australian Sorghum Demand Structure

In regards to domestic consumption of sorghum, there has been a reduction in the Australian cattle herd. Most anticipate cattle on feed numbers will remain at near highs of approximately 950K head, while cattle remain available, due to the strong beef export trade. This will see continued support due to the AUD, finding a range of $.70-.73 in early 2016. Domestic consumers will typically incorporate sorghum into the ration at a $35-$40 discount to ASW/feed wheat prices which is currently getting close.

Chinese exports could increase due to the recent Free Trade Agreement signed by the Chinese and Australian Governments. Australian sorghum is also gaining interest from new export homes in Asia as a substitute feed grain, which would add to the bullish story.

The first half of 2016 is vital for Australian sorghum prices with focus on the US harvest, weather for the Australian harvest, demand levels from China and the outlook for the Australian Dollar.