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.
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.
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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