What Happened to Australian Grain Prices?

What Happened to Australian Grain Prices?

 

Chris Coore, Agfarm Advantage Manager

February 15th 2019

Over the last four weeks we have seen wheat and barley prices fall significantly, which is contrary to what the entire industry thought was going to happen. We’d all seen domestic and global production suffer and it was a common belief prices would continue on their upward trajectory post-harvest. But, in line with what we always say, grain markets are fickle and can change at the drop of a hat. So, we’re going to take a look at what has happened to grain prices over the past month, why it has happened, and what the market is predicting going forward.

What Happened?

Often grain prices will follow a similar cycle over the course of the year. During harvest, prices dip due to high supply hitting the market from grower selling then, throughout the year as stocks are sold down, prices gradually increases as risk from the northern hemisphere production becomes more known. The actual prices are rarely the same year on year, but the cycle it follows is usually similar. Despite Australia having unfavourable conditions through 2018 leading to production levels being well down from average, prices have retreated, not increased like expected.

Why did it happen?

Due to the historically high wheat and barley prices at harvest, we saw strong grower selling. With strong grower selling comes strong trade buying and as such, the trade is now holding significant length and are looking to find demand for this length. Demand points in Australia, such as feedlots and millers are staying quiet on the accumulation front forcing the trade to lower prices to meet consumer bids. The same situation is also happening globally. The trade continues to offer grain to find export demand which is pushing the market down. This includes Western Australia’s market and given Australia’s East Coast is currently part of WA’s export program, prices have fallen across the country.

On top of this, barley experienced its own issues. In the middle of harvest this year, China announced an investigation for anti-dumping of Australian barley. China claimed Australian exporters had been selling barley to China below fair market value and below the price it typically would charge the Australian domestic consumer. This announcement dramatically affected the fundamentals of the Australia barley market, as China is Australia’s largest exporting destination for barley. This means we’re now reliant on our traditional exporting homes of Saudi Arabia and Japan. With Australian exports of barley now having to compete more aggressively against global export countries, prices saw a pull back.

Sorghum has also had a part to play in the market dynamic. Australia’s sorghum crop has been a hot topic for a while now with initial speculations saying we could have a 1.5 – 2 million metric tonne (MMT) crop. This has gradually reduced as production and quality deteriorate. Trade estimates for this year’s production have recently been revised down to 1.3MMT with further cuts forecasted. Due to the China Antidumping investigation the industry doesn’t foresee sorghum exports to China in any great style and most of the production will need to be consumed domestically. Therefore, sorghum prices are competing with wheat in the pig and poultry sector in both major domestic markets on the East Coast, being the Riverina and Darling Downs, which is supportive of sorghum prices, taking precious demand away from wheat and barley.

What is going to drive prices from now?

The focus for the market is back to domestic weather and this will likely be a key price driver moving forward. On the 14th of February, the BOM released their weather forecast for March to May, a vital window for cereal acres. Unfortunately, they’re sighting normalised rainfall conditions for most of the cropping belt. This in most cases won’t be enough to replenish the much needed sub soil moisture around the cropping belt leading to potential plant stress and reduced planted acres.

Source: www.bom.gov.au

The other driver being watched closely is the lack of summer rainfall in the northern parts of eastern Australia leading to a lack of onfarm feed prior to winter. This will likely increase the onfarm feeding demand.

What will prices do now?

Despite the recent and unforeseen decrease in wheat and barley values, it looks as though the market has done enough work to the downside and is pricing fresh demand both offshore and domestically. We’re reasonably in line with other exporting nations such as the Black Sea, United States and Argentina, once again being competitive in the global market. This has put some pressure on domestic consumers on the East Coast to step back into the market and ensure they have cover before too much is exported. Realistically, we still have a short supply of grain in Australia and the weather still doesn’t seem to be turning the tap on, so as we progress through the year and chip away at local stocks through domestic consumption and exports, prices are likely to gradually march upwards.

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VIC Market Update – 08/02/2019

James Ryssenbeek, Agfarm Regional Manager VIC

Good soaking rains have been welcomed by much of Victoria this week. Croppers will take it to replace soil moisture, western districts dairy farmers were happy for the summer forage crops, and almost all livestock farmers are looking for feed. Some standouts were 20mm at Ouyen, 30mm at Longerenong and finally some rains for Gippsland which is very dry.

Grain markets remained quiet this week with discussions generally centered around executing existing contracts. There continues to be domestic consumer demand and farmer to farmer trade for stock feed. Hay trucks have again started moving north into NSW/QLD from Victoria.

Old crop prices continue to soften due to lack of demand, with producers holding and consumers waiting to see how far prices may come off. That said, as prices fall, Australia becomes more export competitive in what is our key export window. Once we start to see export sales the domestic market is expected to move with consumers looking for coverage before grain goes overseas.

Prices as at 7th January

* View of current market pricing. Does not represent current Agfarm bids.

 

 

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CNSW Market Update – 08/02/2019

Anthony Hall, Regional Manager NSW & QLD

It was a disappointing week for the Central NSW and QLD winter cropping belt. As you can see from the below BOM seven day rainfall map there was absolutely nothing in the gauge. More frustrating for the central QLD area with substantial rain falling north, south and west of them. The lack of rain is obviously saving summer fallow sprays however building some profile for winter would be advantageous. One positive is the temperature has come back a little which is some relief for the later sorghum crops.

As summer harvest progresses we’re hearing more accurate figures on yield and quality with the early crops around the western downs going 1MT/acre and the later crops expected to be far less at around 250KG/acre. There has unfortunately also been reports of screening issues.

There was a softer tone to the markets this week. The lack of buyer bids saw prices trying to trend lower, however sellers were reluctant to sell the market down. SFW1 delivered downs was offered at $440/MT with little bidding activity. Sorghum Mar/April delivered Downs was $352/MT and May/June was at $348/MT. F1 barley came under pressure again this week and was bid into the Downs at $395/MT.

 
 
 
 
 

Prices as at 7th February

* View of current market pricing. Does not represent current Agfarm bids.

 

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SNSW Market Update 08/02/2019

Matthew Noonan, Agfarm Account Manager SNSW

Another week of mixed weather. It is still reasonably warm around the southern half of NSW but the past three to four days has seen some stormy weather with some paddocks getting a good drenching. Most will have run into dams but hopefully some has soaked in. Falls ranged from 0mm for some, while some western areas received up around 25-30mm. Eastern areas of the South West Slopes had falls between 50-80mm’s. Not drought breaking by any means but has brought some relief.

The past week has seen wheat markets slightly soften due to newly harvested sorghum reaching as far south as the Murrumbidgee region. This will bring some temporary relief for consumers who can substitute sorghum into the ration for wheat and/or barley. Griffith market zone for the back end of this week is now hitting either side of $430/MT delivered. With a sudden influx of cheaper grain this may keep any increases into our local Southern NSW markets at bay for the short term.

Barley has seen some enquiry for grazing/feed lotting/maintenance feeding markets but will need to come a lot harder and faster for it to push prices up significantly. There is some opportunity with some sellers around $380-390/MT exfarm.

Canola markets continue to be slow. Some have increased by $1-5/MT this past week which might provide some selling opportunities. Port Kembla Track values are ranging around $615-622/MT.

 
Pictured: Irrigated cotton (left) and seed sorghum (middle and right) near Deniliquin.

 

Prices as at 7th February

* View of current market pricing. Does not represent current Agfarm bids.

 

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WA Market Update – 08/02/2019

Reid Seaby, Regional Manager WA

This week CBH confirmed WA’s 2018 crop was the second biggest on record with 16.4MMT of grain received across the four port zones during the 2018-19 season. This figure fell just short of the 16.65MMT received in the 2016-17 season. The variance between port zones was disproportionate to the 2016 harvest with the Albany and Esperance port zones down 500KMT and 300KMT respectively, while Geraldton remained essentially unchanged. This year’s large crop did see the Kwinana zone receive 8MMT of grain, beating its previous record of 7.5MMT.

Markets on the whole remain lacklustre with negative overtones from barley weighing on wheat markets. Feed barley has fallen $27/MT to $290/MT from the $317/MT levels seen as recently as 24th January. Export demand continues to be hurt by the fact there doesn’t appear to be a resolution about China anytime soon. The government shut down in the US has limited USDA reporting recently, but we should start to get a little more clarity on global trends in the next couple of weeks. New crop wheat popped $10/MT this week to end at $295/MT FIS in Kwinana, but grower engagement remains non-existent.

Prices as at 7th February 2019

* View of current market pricing. Does not represent current Agfarm bids.

 

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SA Market Update 08/02/2019

Kate Phillips, Agfarm Regional Manager South Australia

There was some rain around the great state this week and although it barely put 1mm in the rain gauge, the somewhat unfamiliar light tapping on the roof just before dawn was a beautiful sound. Adelaide however is still in a dry spell and currently up to 50 days without rain. The record sits at 69 consecutive days with no rain, let’s hope this is a record the state doesn’t break! Looking at the positive side of the coin, it’s not unusual for it to be dry in the first quarter of the year in SA and there is still plenty of time for rain to fall and subsoil moisture levels to rise, at least this has kept the summer spray costs down for many.

In local grain markets we have seen prices stay relatively stable. Growers are still sitting back and watching for the most part but we’re seeing some good opportunity to sell into the domestic feed market. Those watching contract prices at sites will have seen buyers fairly disengaged. We may start to see this change as the USDA data starts to emerge from the US later this week.

Looking at the numbers, cereals have remained relatively unchanged week on week. Feed barley is back $5/MT with bids around $305/MT Port Adelaide and $347/MT Port Lincoln track. Wheat was back $1MT in Port Adelaide and back $3/MT for the Port Lincoln zone week on week. Canola in both Port Zones at this stage is still only attracting the attention of one or two buyers with bids hovering around $540/MT Port Adelaide and $520/MT Port Lincoln.

 

Pictured: A very happy hay bale near Poltalloch, SA.

Prices as at 7th February

* View of current market pricing. Does not represent current Agfarm bids.

 

 

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Agfarm Finance Newsletter – January – Lease vs Buy, The Age Old Argument

Reid Seaby, Agfarm Regional Manager WA

Around the grounds – January 2019

The BOM recently released their quarterly outlook which unfortunately is instilling little confidence in growers, particularly those on the East Coast who have just suffered through a very challenging season. As farmers begin budgets and look towards next season, they are rapidly realising the impact of the poor production year. This is being exaggerated by the outcomes of the banking royal commission. It is reportedly becoming more and more difficult to get funding and there have been significant time delays. Even those who have been eligible to apply for the government assistance loans have commented on the extensive paperwork and lengthy wait periods.

On a more positive note, the expectation of greater compliance and rigour from the industry has prompted growers to be proactive and engage with their financial provider/s earlier than they traditionally would. Another encouraging thing to come out of the elongated dry spell is the reduced need for chemical, with very few people experiencing a summer weed germination.

Lease vs Buy, The Age Old Argument

With famers seeking opportunities to scale up their operations, increase profitability, manage risk and support succession planning, they are forever looking for options to grow their land holdings to accommodate more cropping and more livestock. This has historically been achieved by purchasing land that is for sale but in recent times, leasing has become a more popular and economically viable option.

Leases provide the lessee with the benefit of accessing increased acreage, enabling them to achieve greater economies of scale without having to raise huge amounts of capital for the purchase, while also decreasing the magnitude of the overall commitment. Not only does it benefit the lessee, but it also allows the existing landowner to decrease the size of their operation or exit farming without parting ways with an income generating asset.

More recently, leasing land has become an increasingly popular business model for farmers to either get in to agriculture or to add to existing land holdings. Although the number of leases has increased in Australia it remains an underutilised option when compared with the high lease rates in places such as Canada, the UK and the United States where leasing can account for between 40 – 60% of farmland1.

What are the pros to consider?

1. The ability to expand your business’s output without the large capital outlay. Some farmers are not in a position financially to buy additional land, rather they acquire a lease property to enable them to increase the area of their farming operation. According to the Australian Farmland Values report produced by Rural Bank in 20172, the average annual median price growth for agricultural land was 6.6% over the past 20 years, making it more and more challenging for farmers to buy property. Leasing is a solution to this.

2. Succession – it can provide a transition for older and younger farmers. In some instances, older growers are looking to scale down their farming operation which gives other younger farmers the opportunity to increase the scale at which they operate. This is a common form of succession planning for families.

3. Economies of Scale. Increasing scale should generally mean farmers can achieve greater levels of efficiency because the fixed costs are spread over a larger area of land. Although some overheads will increase, the overall cost of production on a per hectare basis should decrease.

What are the cons to consider?

1. Flexibility of agreements. With leases being a less common form of land tenure, there are many ways agreements are structured, they seldom follow a standardised practice. The flexibility these agreements offer is often beneficial but can also cause a lot of angst amongst the interested parties. Without a properly prepared and formalised lease agreement that details the landowner’s and tenant’s obligations, the outcome has the potential to be messy.

2. Price and term of lease. The price and term of a lease can also be difficult to negotiate. A fair lease price is hard to determine with volatility in grain markets and input prices. Lease terms will often depend on individual circumstances. A longer lease term may not be in the interest of the lessee based on their own future planning, however a shorter lease term can often lead poor soil conservation as tenancies change.

With these pros and cons in mind, Agfarm have introduced lease payments as part of the Accelerate finance package. This means from the 2019/20 season and beyond, growers will be able to fund their lease through Accelerate which will further assist in managing cashflow. To be eligible, the payment must be for land on which the current season crop is grown, a formal and legally binding lease agreement must in place, and the payment will be made from Agfarm to the landowner on the Accelerate customer’s behalf. For further information on lease payments or any Accelerate related questions please contact your local Regional Manager.

1. Is Agriculture Land A Good Investment. Decisions On Farm Land Tenure: Buying, Leasing And The Alternatives. Duncan Ashby (RG Ashby & Co.). 10/3/2016.https://grdc.com.au/resources-and-publications/grdc-update-papers/tab-content/grdc-update-papers/2016/03/is-agricultural-land-a-good-investment
2. Australian Farmland Values 2017. Rural Bank. Published March 2018. Department of Agriculture and Water Resources 2018, Agricultural Lending Data 2016–17, Canberra, October. CC BY 4.0. https://www.ruralbank.com.au/assets/responsive/pdf/publications/afv-2017.pdf
 

Industry Report – Agfarm’s agribusiness reporting pick for the month.

Rural Bank – Weekly Economic Commentary – Why Isn’t the Australian Dollar Rallying More?

 

 

Reid Seaby WA Regional Manager | 0439 625 853

Kate Phillips SA Regional Manager | 0438 128 472

Anthony Hall QLD & NSW Regional Manager | 0400 873 777

James Ryssenbeek VIC Regional Manager | 0447 743 556

 

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VIC Market Update – 01/02/2019

James Ryssenbeek, Agfarm Regional Manager VIC

Continued heat, storms and schools back!

Wednesday brought some brief respite from the continued heat with hail and rainfall scattered all over Victoria. There were some meaningful falls in the Goulburn Valley and patchy rains through the Wimmera/Mallee. Elmore received 15mm, Merchison 15mm and Donald 12mm.

Markets remain quiet in the main. Victoria achieved a milestone recently, being Australia’s cheapest grain market. Particularly barley which is now below WA import prices. Consumers have started buying forward to cover the near months and this is creating opportunities for would be sellers.

Softening grain prices have resulted in deliveries to pooling type products as growers hedge their grain onfarm with longer term marketed grain.

Prices as at 31st January

* View of current market pricing. Does not represent current Agfarm bids.

 

 

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CNSW Market Update – 01/02/2019

Anthony Hall, Regional Manager NSW & QLD

Summer cropping… it never ceases to amaze how quick things can turn around. The past week’s weather conditions have been far from ideal; relentless heat, no rain and a less than average forecast for rain in the coming months. Most of the NSW summer cropping belt experienced plus 40oC for the past six days and QLD wasn’t much better ranging from 38 to 42oC. Driving through NSW & QLD this week it’s hard to see where last week’s storms fell with the heat burning off any green pick.

Early sorghum crops are finishing quickly in the heat while later crops are struggling and will need another decent fall of rain to maintain yields. There have been reports that dryland cotton is starting to struggle during peak growth with continued high temperatures and lack of rain. Irrigated crops even struggled this week. Trying to keep up with moisture usage meant watering schedules were reduced, pivots were left going full time and ground water users are being cut back on their pumping times.

Central Queensland cotton harvest is in full swing with yields ranging from 9 to 12 bales. Fairbairn dam is looking terrible, currently sitting at 13.5%. It’s very dry around Emerald with no real evidence of recent rain until you get to Capella. Below are some photos of sorghum planted between Christmas and New Year in the Capella area. This crop had 2.5 inches of rain after sowing on an already full moisture profile. Harvest is expected at the end of April and early May.

In terms of pricing, markets in general are softer overall with barley now coming from WA and landing in the Darling Downs feedlots for around $400-405/MT. Wheat has remained rather steady at $440-445/MT delivered Darling Downs. Sorghum has come off slightly with the arrival of harvest in some parts. Darling Downs is $1-5/MT softer but still edging close to the $360/MT delivered level while the early shorts in the Liverpool Plains must have been sorted and that market is back $5-10/MT this week. New crop APW1 MG Newcastle is steady from last week at around $350-355/MT NTL track. For now, it seems rallies will be short due to execution costs from WA being competitive, so expect prices to work in a reasonably tight range for the short term.

 

 

Prices as at 31st January

* View of current market pricing. Does not represent current Agfarm bids.

 

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SNSW Market Update 01/02/2019

Matthew Noonan, Agfarm Account Manager SNSW

The last week has brought stormy weather and muggy conditions allowing storms to build in afternoons or evenings. However, it has been patchy and most of the Southern NSW grain growing regions have only received 1-10mm’s in total. Livestock producers are also looking over their shoulder for a change to come through and provide some green pick so they can continue holding stock. Some are already trail feeding or putting into pens for feed lotting. This hasn’t yet bought an increase to grain prices as most seem to be utilising stock held onfarm from harvest before looking to test the market for supply.

Most wheat markets again are steady for now. There has been some softness appear, but this seems to be more from a lack of liquidity on both sides of the grower/buyer fence. We might start to see some market firmness through February and March as we see some consumers come back into the market to cover themselves further, but for now, prices will remain range bound. Griffith market zone continues to stay around $435-440/MT Feb-Mar while Young MZ is either similar or $3-5/MT stronger. Track markets have softened by $1-5/MT over the past week. One would suggest lack of liquidity is the main cause. New crop pricing remains steady at around $350-355/MT Port Kembla track, after last week’s jump. This is definitely worth looking at but with all the factors (weather forecasts, very early in season, current markets) taken into consideration, being conservative might be the best approach for now.

From looking around, barley still remains a demand issue, with only a few major homes taking for the moment and only smalls moving grower to grower for livestock needs. A little more time is required on the barley situation with buyers sifting through exfarm and/or delivered Jan/Mar 2019 contracts placed last year or prior to harvest before dipping their feet back into the water. Barley supplies will be tight, but most major demand points (QLD, Melb/Geel, Sydney) can be serviced by boats from WA which had a near on record harvest with 4.3-4.7MMT produced. A good amount of this will make its way overseas, but should we even see 20-30% of it, that should alleviate some of the supply fears for consumers.

 
Ground hog day on Canola. Markets have hardly budged over the past few weeks so if you don’t see $10-15/MT upside between now and sowing then maybe this is a sell for now. Past this, prices will be determined by how good a start we have to sowing here on the east coast, and to a lesser extent overseas oilseed markets that will start to take shape by Apr/Jun subject to their own production prospects. For now, one would think there is enough canola in Australia to service our domestic crushing demands. Should too much be sent on boat to Europe or China from WA it might tighten supplies, but as we stand only 10-20% of a 1.2-1.4MMT WA’s canola crop has been picked up or scheduled to go out over the 1st Quarter of 2019.

 

Prices as at 31st January

* View of current market pricing. Does not represent current Agfarm bids.

 

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