Weather, Prices and Production – What to Expect This Harvest
Chris Coore, Agfarm Advantage Manager
August 15th 2019
We’re less than a month away from Australia’s key growing period and the usual pre harvest jitters have started to set in for growers, consumers and traders. All market influencers are being watched with a keen eye; the weather, current grain prices, overseas news, production estimates, the list goes on. So, this month we’re going to take a look at these elements and what they’re doing to grain prices as we edge closer to harvest.
Australia experienced a very good start for most of the cropping belt in Western Australia, South Australia, Victoria and Southern New South Wales but since mid-July the tap seems to have been turned off. This has understandably caused an element of panic. After a disappointing 2018/19 season growers, domestic consumers and exporters are all reliant on a more normalised season to replenish stocks and return to a ‘normal’ operating environment. Unfortunately, the radar is showing a dry finish and grain prices are following the outlook. The concern for a potential dry finish has been driven from a positive Indian Ocean Dipole (IOD) phase which generally creates cool ocean waters to form in the east limiting rainfall and causing higher temperatures for parts of Australia.
These weather concerns have caused grower selling around the country to slow keeping a strong bid tone in the current market from end users and exporters as liquidity from the sell side becomes thin. Meaning, in most new crop markets for wheat, barley and canola there are more buyers than sellers and it will likely stay that way until we see a break in weather or another wave of selling.
Image 1 source: http://www.bom.gov.au/climate/outlooks/#/rainfall/median/seasonal/0
Image 2 source: http://www.bom.gov.au/climate/enso/#tabs=Indian-Ocean
In the early hours of Tuesday the 13th of August, the United States Department of Agriculture (USDA) released the August World Agricultural Supply and Demand Estimates (WASDE) report. The report was ultimately bearish for corn resulting in Chicago Corn futures trading the full daily allowable move down dragging wheat futures down 27 cents/bushel or $AU14.50/MT.
Starting with corn, the WASDE reported world corn production up 3.1 Million Metric Tonnes (MMT) and lowered world demand 5.8MMT resulting in world stocks to be up 8.8MMT.
The WASDE report was neutral for global 2019/20 wheat production for most parts of the world with the US being the exception. The report featured a 4.5% increase in US Hard Red Winter and Spring wheat which, coupled with a startling bearish report for corn, pushed Chicago wheat futures sharply lower. However, there is still concerns for Russia’s final wheat production number, Australia’s new crop production and EU wheat which has allowed cash values to remain stable.
Australia’s Current Grain Prices
Overall, wheat prices across Australia seem to be in line with the current market. Western Australian wheat is pricing close to export demand for new crop, Darling Downs delivered wheat is pricing off full execution from Western Australia, and South Australian and Victorian values are pricing domestic homes in NSW. Australian barley is completely reliant on China demand as we are too expensive for the traditional demand point of Saudi. If the ongoing anti-dumping investigation results in a no ruling and China imports Australian barley in 2020, prices should remain stable. But, if China does not use Australian barley, we will need to price Saudi demand which is $AU25-30/MT lower than today’s values in Western and Southern Australia. The Chinese Anti-Dumping probe will be one to monitor as any developments in this will dictate what happens to local barley prices. The other point to note is how wide the barley/wheat spread is in Australia for new crop. Barley will likely buy more domestic demand due to its discount to wheat.
What will happen to grain prices as we edge closer to harvest?
As Australia enters the key growing period of September, the biggest concern and the key price driver will be weather, something the entire grains industry is closely monitoring. If we see good rainfall during September, grower selling will follow which will push values lower. However, if the dry forecast rings true and production levels continue to creep backwards it’s safe to assume values will remain flat to firm coming into the harvest period as exporters and consumers look to get forward purchases on the books.
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