Production Estimates, Global Weather and Swine Fever Driving Market Volatility

Production Estimates, Global Weather and Swine Fever Driving Market Volatility

 

Chris Coore, Agfarm Advantage Manager

June 17th 2019

The last few months has seen domestic and global grain markets increase in volatility. The market is on edge and continually changing their mind from being long to short which is showing large price fluctuations. There are several factors contributing to this yo-yoing in decision making including local and global weather and production outlooks, and the African Swine Fever outbreak continuing to spread. This month, we’re going to take a look at these topics in more detail.

Most of Australia’s winter plant is complete with some farmers still capitalising on recent good rainfall in Western Australia. Predicting the size of a crop this early in the season is like throwing a dart at a board, but Agfarm’s estimates are; wheat 22.5MMT, barley 8.8MMT, canola 2.95MMT.

As the above chart highlights, wheat production for the 2019/20 season is projected to be 2MMT lower than the 10-year average while barley is on par with the 10-year average. This is a result of late rain over the planting window causing acres to swing from wheat into barley. The recent release of the Bureau of Meteorology’s (BOM) outlook for July to September, reporting there is just a 30% chance Australia will receive average rainfall, is also supporting the lower than average wheat production as barley is a ‘hardier’ plant and able to withstand harsher conditions. It is important to note; this is just a prediction by the BOM. As we all know, predictions are not always correct, and Australia can still grow a good crop if rain is received at the right time during the growing season. However, this prediction coupled with much of NSW and QLD still being plagued with drought, has created concern 2019/20 won’t be the season that rebuilds our domestic stocks. NSW and QLD house the largest domestic grain consumption points in Australia so if the season doesn’t improve, grain will again need to be executed from VIC, SA and possibly WA.

Moving overseas, the US is having the opposite weather problems to Australia. On Tuesday the 11th of June the United States Department of Agriculture (USDA) released their World Agricultural Supply and Demand Estimates (WASDE). With unprecedented rainfall through the US, farmers have had an extremely difficult time getting into the fields to plant corn before it is too late. The trade knew planted acres would be cut back significantly from trend but what they weren’t expecting was such a dramatic cut to yield. The report showed a cut of 3 million acres for corn and also cut yield by 5%. Ending stocks have been pegged to fall to 16.75 billion bushels or 23.5% lower than the June 2018 crop report. While some may say the corn ending stocks number is not horribly tight, others would argue more cuts to acreage and production should be made in following reports and ending stocks could be lower. This weather isn’t only affecting corn farmers. The US has started their 2019/20 wheat harvest and this wet weather is likely to create quality concerns. And on the flip side, southern Russia has experienced unseasonably dry weather and some industry experts are concerned about potential wheat production cuts. All these factors combined are causing global corn and wheat values to be well supported.

How does African Swine Fever relate

With the outbreak of African Swine Fever in China, which is a highly contagious virus affecting pigs, it is estimated up to one third of the Chinese pig herd could be culled. To highlight how serious this situation is, in April, food inflation rose 6.1% from a year ago and pork prices were a main component of the increase in inflation. Now the interesting part… In a year corn production looks to be dramatically cut, domestic feed demand for corn looks as though it could rise to feed more meat production as demand increases in China for protein. This scenario would rely on the US and China finally resolving the trade war and hopefully reaching an agreement beneficial to both countries.

What does it all mean?
Globally, given where we are in the season with uncertainty over the US corn plant, the US and Russian wheat harvest and the extent of the Swine Fever outbreak, the yo-yoing looks as though it will continue for now. Locally, with little carryover stocks of wheat, barley and canola on the east coast and South Australia, and the BOM predicting little rainfall through July, August and September, it looks as though 2019/20 isn’t the year we will increase our carryover stocks. However, the coming months will see grain participants in Australia and around the globe watching weather markets, production predictions and hopefully the containment of the African Swine Fever outbreak, which should in turn create stability in the markets and hopefully see a positive move in grain prices.

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VIC Market Update – 14/06/2019

James Ryssenbeek, Agfarm Regional Manager VIC

1.5 minute read

Good rainfalls again this week for most. With the exception of upper north west corner missing the big falls. Swan Hill, Ouyen, Kerang, Echuca all reported less than 10mm while the central Mallee, the Bendigo area and southern Vic recorded widespread 25+ mm on Wednesday. In these areas there has been enough rain in May/June to justify additional fertiliser applications bolstering lighter applications at sowing. For irrigators however the headwinds remain. May and June rainfalls have been welcomed as a substitute or reduction for pre-watering requirements, but the outlook for spring watering remains in doubt at profitable figures. >$350/MT is often used for cereals as a profit ceiling. There are a lot of irrigation bays sown dry too, which without irrigation water, will struggle to produce on soil types requiring significant water.

Markets remain relatively stable this week across new and old season. There has been some good end of financial year sales enquiries this week and we continue to service livestock farmers. I found most growers this week were looking for $5+ above the bid. “If I’ve held this long, I can probably wait a little longer” has cropped up a few times. New crop sales softened but pricing remained stable with rain finally falling in WA supported by good rain in SA and Vic this week.

Pictured: Cereals looking good near Thyra VIC

 

Prices as at 13th June

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

 

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CNSW Market Update – 14/06/2019

Anthony Hall, Regional Manager NSW & QLD

1 minute read

There has been a little bit of rain around this week in central NSW up to the Darling Downs but only enough to settle the dust with 3-6mm recorded. It may help fill in the un-germinated patches where people have dry sown and freshen up what’s out of the ground, but without follow up rain within the next two weeks we will be back on a knifes edge. Growers are still holding hope something will fall this month and planting can continue. It’s late, but history has shown we can still grow a crop if there is a kind spring.

We are still at a standstill for sowing activity. There may be a little bit of spraying required on fallow country after two small falls, but outside of that there is not much diesel being burnt.

Markets were down in front of the last rain forecast but quickly recovered lost ground once the falls were noted less than first expected.

Prices as at 14th June

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

 

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WA Market Update – 14/06/2019

Reid Seaby, WA Regional Manager

1.5 minute read

The long awaited break to the season has finally arrived. Really good rains were received by much of the state last week as a couple of weather systems passed over the agricultural regions between Thursday and Monday. Some areas had as much as 100mm over this period but unfortunately, the Esperance zone did miss out, receiving approximately 5-10mm. Esperance did however get off to a better start than a lot of areas with 10-15mm recorded in May when the rest of the state remained dry.

While this rain is a little later than most would have liked, it’s obviously a welcome change and has seen a few more hectares go in (although as a percentage of total area, it will be small). Given the later break we still believe the area sown to wheat will be lower, canola hectares will also be down, while barley and oats acres are likely to increase as a result.

Markets have taken a bit of a breather over the past couple of weeks and as a result, grower selling seems to have slowed. It seems the rain has taken the heat out of the market for now, but it will certainly give farmers greater confidence moving forward due to improved production certainty. APW in Kwinana was a bit higher this week, up $3/MT to $312/MT FIS. Barley bids were a little softer as feed dropped back to $260/MT a tonne and malt fell $5/MT to $285/MT FIS in the Kwinana zone. Red crop bids are now entering the frame with 2020/21 APW multi grades priced around $315/MT in Kwinana.

Prices as at 13th June 2019

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

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SA Market Update 14/06/2019

Kate Phillips SA Regional Manager

1.5 minute read

The rain so desperately needed by many made an appearance earlier this week. The day prior to the rain was one of the warmest June days for many years and the rain front brought the best falls seen in two years. This event has brought much needed relief to many areas and an increase in confidence in the season. Rainfall for the week ranged from 19 to 75mms with a few more fronts appearing on the eight-day radar. The recent rains will help solidify the potential of the season and should see crops start to come along nicely. Agronomists will be kept busy with crop checks and spray plans.

This week has seen continued buying interest in barley for sheep feed. Although the paddocks are turning green there is still the need for feed. Those who have held onto old crop tonnes are seeing bids in a similar ball park to last week for both wheat and barley. Wheat is continuing its run north of $300/MT with Port Adelaide APW1 at $320/MT, H1 at $335/MT and AUH2 at $300/MT. Barley has made a sideways move into this week at $310/MT.

New crop bids remain steady. APW1 Multigrade is a tick above the $300/MT trigger at $303/MT and F1 barley multigrade is at $250/MT. Port Lincoln has followed suit with a $10/MT spread between port zones with Lincoln at $293/MT for APW1 multigrade and $240/MT for F1 barley multigrade. Canola continues its run at $556/MT for both Adelaide and Lincoln.

 

 

Prices as at 14th June

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

 

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SNSW Market Update 14/06/2019

Matthew Noonan, Agfarm Account Manager

2.5 minute read

This past week has seen most locations in southern NSW, Riverina and southern South West Slopes receive 8-20mm’s (more in some cases) with lighter falls moving into the Central West of around 1-5mm’s. With some production certainty creeping in throughout the southern third of NSW smalls of new crop may be looked at with pricing mostly around decile 8 or better.

Old crop wheat markets softened on the back of rains throughout WA, SA and south east Australia over the past week. However, with futures remaining neutral to bullish for now, local and international pricing looks like it will continue its yo-yo affect through to new crop. The Griffith market got down to $370-375/MT delivered earlier in the week but the past few days has pushed higher again searching for a bid towards $385-390/MT plus. The new crop Port Kembla track market is slightly firmer week on week up to $350-355/MT which has two drivers at present. The northern Port Kembla zone still lagging condition wise and the overseas world supply picture is somewhat bearish but getting pushed along by US corn and some dryness in Russia and Canada.

Barley remains rather steady and through much of southern NSW and into the South West Slopes at minimal margin to old crop wheat. As moisture builds in some grazing crops it may provide graziers a chance to reduce feeding requirements, but with current lamb prices and plenty of interest in store lambs, some feeding should continue keeping a base under this part of the barley market. New crop is also steady with Port Kembla track still around $285-290/MT. The spread from wheat (ASW1 spread) is around $40-45/MT which makes wheat a better sell, but the Australian barley crop should be quite decent so current prices going the distance could be seen as ok levels subject to how the rest of the season pans out across the country.

Canola pricing is not doing much at all. Crushers are relatively well covered through to new crop with fair value around $600-613/MT Port Kembla track at present.

New crop remains steady even though VIC and southern NSW received reasonably good growing conditions with recent rains but the underlying feeling is that acres are less year on year and conditions in the Central West are not allowing canola to get going. There was talk of some canola having to get replanted due to crusting over of the soil from heavy rains in May.

Pictured: Canola in Murrami NSW

Prices as at 14th June

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

 

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VIC Market Update – 07/06/2019

James Ryssenbeek, Agfarm Regional Manager VIC

1.5 minute read

Another good week in Victoria. Rainfall has been widespread through the middle and southern areas. Speaking with two growers around Donald/Brim area and both have had >60mm average across their farms for May and are very happy at the moment. However, there are areas requiring more rainfall. Echuca heading west along the border to Mildura have missed much of May’s rainfall (relative to central and south) and will need more soon. Unfortunately, the rains forecast for this coming week aren’t showing to benefit these areas – but that has been known to be wrong!

Markets are a mixed bag this week. Old season wheat had some big moves, both up and down, while barley has remained relatively stable supported by continued sales to livestock holders. The cooler weather continues to stall pasture growth, so feeding is still required. New crop markets have softened this week in Vic with the run on good rainfall and nice early growing weather.

Interesting fact for you, top export destinations for Victorian wheat in 2018 were; Malaysia 258KMT, Indonesia 203KMT, Vietnam 150KMT, Philippines 115KMT, New Zealand 121KMT and Thailand 102KMT.

Pictured: Freshly sown paddock near Balliang VIC.

 

Prices as at 7th June

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

 

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CNSW Market Update – 07/06/2019

Anthony Hall, Regional Manager NSW & QLD

1.5 minute read

There has been no rain to report this week however the temperature is definitely telling us winter has arrived. There is rain activity popping up on the 10 day forecast, showing bigger falls in the southern part of Australia and along the coast line. Unfortunately, there is not a lot showing for central NSW through to southern QLD.

It is getting late in the season to sow. In areas where summer cropping is possible, they’re saying if they haven’t sown a winter crop within the next three weeks they will switch to summer and conserve what moisture is there.

All farming activity seems to be in a holding pattern at the moment. Anyone who had moisture has finished sowing or run out of moisture so pulled up until the next rain. It’s really hard to make a general comment on what has been sown and its current conditions. Anyone who had some stubble cover and banked a little bit of moisture through summer have a good germination and crops are holding in. The areas with no stubble cover or that was worked for weed control in summer has experienced extremely patchy germination.

The markets have reacted in advance of the rain forecasted. Most feed values fell in the later part of the week.

Prices as at 6th June

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

 

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WA Market Update – 07/06/2019

Tom Guthrie, General Manager Account Management

1 minute read

Western Australian grain growers are back on the tractor this week furiously getting the crop in ahead of the front which is due to hit the west over the weekend.

If the rainfall forecast makes it into the gage then a large part of the WA cropping belt would have received a significant drink/break in the season. Albeit it is very late, and we will need a kind winter and spring to see this one home! WA will see more hectares planted once the rainfall is confirmed and the late plant should favour barley and short season wheat varieties.

The positive forecast across Southern Australia, strong cereal production prospects in the northern hemisphere, the US corn crop going backwards, and associated futures volatility has pushed cereal values lower during the week. New crop grower selling has also slowed on this pull back.

WA wheat has become more compelling globally on this move lower, relative to both cash and US futures.

Pictured: This paddock in Mukinbudin WA will very much appreciate the forecast rain.

 
 
 
 
 
 
 
 

Prices as at 6th June 2019

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

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SA Market Update 07/06/2019

Tom Guthrie, General Manager Account Management

1 minute read

Winter is here across the great state following a cold and dry week. Rainfall is forecast over the weekend and will be welcomed throughout the cropping belt.

Production prospects continue to improve in most regions as rainfall catches up on a late break and a slow start to the season. Like WA and Victoria, SA will need a kind winter and spring to bring this crop home.

Some grower selling was noted late last week and early this week on the up tick in values for wheat. However, the pull back in values over the last two days has turned off grower selling for now.

In most regions sowing is now complete, which in turn will allow growers to enjoy a well earned break over the long weekend, maybe even make it to Adelaide Oval to watch the ‘Pride of South Australia’ beat up the Giants!

Pictured: Some mixed levels of germination through the Murraylands. In general, the area is in need of a couple of solid rain events before they feel confident in the season.

 

 

Prices as at 07th June

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

 

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