Export Troubles Influencing 2019 Grain Prices

Export Troubles Influencing 2019 Grain Prices

 

Chris Coore, Agfarm Advantage Manager

December 20th 2018

The Aussie harvest is all but finished for the season and now our domestic supply is all but known, we’re going to take a closer look at events occurring in Russia and Argentina to see how that bodes for grain prices as we move into 2019.

For a harvest that was predicted to be over in a matter of weeks, wet weather in Australia continued to halt many across all states stalling harvest progression. While we have been screaming for rain all year and the wet weather is being enjoyed, for those still harvesting quality downgrades are starting to become a concern. In terms of production, GrainCorp have grain receivals across Queensland, New South Wales and Victoria at 1.583MMT as of the 17th December 2018. They also received a further 325,700MT of transhipments compared to approximately 3.5MMT the year before. Viterra has received 2.763MMT as of the 16th December compared with 3.86MMT from a similar time last year and CBH have 2018/19 total grain receivals at 13MMT as of the 14th December 2018 compared with 9.2MMT from this time last year.

Moving overseas, it would seem Australia isn’t the only one experiencing a wet harvest causing quality downgrades. Argentina has had a very wet harvest and also experienced some unseasonal cold conditions which is expected to see downgrades for the remainder to be harvested. This is of concern for flour millers in Asia who have been frantically buying Argentinian wheat, the cheapest wheat for the flour millers at present. If the quality downgrades occur, sales already made will need to be filled elsewhere and that ‘elsewhere’ will likely be the USA and possibly Australia.

On the export front, there are rumours Russia will cease exporting grain next year due to tightening wheat stocks, a result of a poor Russian harvest. Russia has been exporting wheat at a record pace, dramatically reducing their typically healthy wheat ending stocks. There is concern in the industry that the government may look to protect what wheat ending stocks they have left by curbing exports. There is a scheduled meeting between the Russian Agricultural Ministry and exporters of grain on December 21st, 2018. While these meetings take place several times a year, this is significant and could quickly change grain markets moving into 2019, and based on past events, we know what could happen if this occurs.

In August of 2010, the Russian Ag Minister did place an export ban. This was due to some of the hottest weather conditions experienced on record resulting in poor wheat production. Due to the poor production, internal food prices in Russia rose dramatically creating outrage within the community. The idea behind imposing the export ban was exporters would be able to walk away from existing export contracts due to force majeure with no financial consequences to the exporters. Then the exporters would be able to resell their stock into the domestic market to help replenish stock piles and lower the cost of food. The issue was, that despite the government banning exports, grain and food prices continued to soar through 2010 due to both growers and traders not selling their stocks back into the market with the view that ending stocks were so low, prices would have to go up.

So, what does this all mean for the outlook?

The grain shortage in Australia coupled with exports from both Russia and Argentina slowing and potentially stopping altogether could lead to prices remaining well supported throughout 2019. At the moment both traders and the domestic consumer are acting on the hunch and are bidding aggressively for grain in Australia. They know there is a shortfall in the back end of the grain marketing year and with what we know about both domestic and global grain markets, it looks as though wheat and barley prices should remain pretty positive as we move into 2019.

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