Agfarm World Market Update, October 2018 – Grain Prices Continue to Rise

Grain Prices Continue to Rise

Chris Coore, Agfarm Advantage Manager

October 15th 2018

And it’s happened again. Australia’s persistent drought has further crippled our winter crop and analysts have once again cut the country’s 2018/19 production estimates. As we all know, September is a critical month in Australian winter crop development, and this season it was the driest September on record. But it’s not all doom and gloom, there is always an opportunity, so let’s take a look at the current production estimates, why production has dramatically reduced in such a short period of time, and what we think this will do to grain prices during and post-harvest.

Australia’s national wheat production is now estimated at 16.5 Million Metric Tonnes (MMT), a 4.9MMT reduction from last year and a 2.55MMT reduction from last month. Barley production is forecasted at 7.2MMT, a decrease of 1.7MMT from last year and 1.1MMT from last month, and canola production is forecast at 2.25MMT, down 1.45MMT from last year and 0.55MMT from last month.

Why such a big drop?

The continued dry weather has meant onfarm feeding, particularly for the East Coast, is critical for animal survival and until the heavens open and bless the parched land with ample green pick, there is going to be high demand and high prices for hay. So naturally, we’re seeing a lot of growers in Australia ‘making hay while the sun shines’, cutting both grain and oilseed acres to eliminate further weather damage to crops and capitalise on high prices. But, the flip side to this is it’s reducing our already small winter crop, pushing grain prices higher into the soon approaching harvest period.

Another contributing factor to the cuts in production estimates is frost. Western Australia was going to be our saving grace this year. They were looking at record yields, they had above average rainfall in many parts and crops were looking fantastic. Then, a late frost hit the state reducing the estimated tonnes and saw some farmers cut what looked to be a fantastic crop for hay as the frost damage started to show.

So, what now?

Looking at this, you might think once prices rise to a certain point it will be cheaper to import grain into the country from other key growing regions to help relieve demand on the East Coast of Australia and put our high prices under pressure. Due to regulatory restrictions to control disease and biosecurity outbreaks, it is extremely difficult to import grain into Australia from other origins, which means we will be running our own pricing race for the near future. And as we have explored in previous months, we’re not the only one experiencing adverse weather and production issues, meaning prices are high internationally, not just domestically.

The greatest unknown in Australia at the moment is ‘when will this darn drought end?’. Sellers will be reluctant to commit stock (both in the ground and in the bin) until there is a strong indication ‘the rains are here’. As the production of grain decreases, when you remove forward sold grain from the equation, the amount of grain to sell at or post-harvest is getting smaller and smaller. This uncertainty creates panic in agricultural commodity markets and grain consumers may soon start battling to secure enough coverage to fill demand, their only weapon – higher prices. This is expected to create a seller’s market place into 2019.

As with last month, we’re not saying you should hold all your grain into next year and wait for prices to go through the roof, because we all know grain markets are fickle and we have to be smarter and more strategic than that. We’re saying, be patient. Because as it stands today there is little to support an argument that prices will decline and notwithstanding the difficult task of importing grain or the domestic drought breaking, they will likely push higher into 2019, making a deferred sales program an appealing choice this season.

To print or download this Agfarm World Market Update, click here.

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