Grain Prices, Exports, Production and The Art Of The Deal


Chris Coore, Agfarm Advantage Manager

May 16th 2019

World grain markets are making headlines at the moment, and as is always the way, a plethora of information is doing the rounds. Every time Trump tweets, speculation runs rife and a new theory of ‘what will happen now’ comes to the surface. So, to save you the time, we’re going to take a look at the big-ticket items including grain prices, Australia’s near record low exports, expected new crop production and the continuing US-China trade war.

Grain Prices and Exports

Old crop wheat and barley values remain under pressure around the nation as exports of grain are looking weaker than first predicted. High prices locally, reduced global demand (especially from China on barley) and good export pace from the northern hemisphere powerhouse Russia, has meant Australian wheat and barley exports will fall to near historical lows.

For wheat, the trade had expected Australian inelastic demand was approximately 12MMT. However, so far this season we are on track to export only 8MMT. As we know, Western Australia has been exporting wheat to east coast ports, but more global demand is needed if we want to keep our carry out stocks to a minimum coming into next season and avoid losing money with price being at an inverse which occurs when old crop values are higher than new crop values.

For barley, China placing Australia under an anti-dumping investigation saw a quick drop in values across the nation as we tried to compete into the next major demand point, Saudi Arabia.

In the past, China has taken the majority of Australian barley exports at a premium to other export markets, but this year, with the findings from the investigation yet to be announced, it looks like we will see a major decline in barley exports. On the flip side of this, the dry weather across much of South Australia and the east coast has seen strong domestic demand for livestock putting barley values at parity with wheat across most regions. Consumers may look to consume more wheat with the price spread being $0/MT, but graziers are happy to pay up for barley due to the ease of use.

New Crop Production

With recent good rainfalls in parts of the South Australian, Victorian and Southern NSW cropping belt we are seeing growers’ plant aggressively. However, in Western Australia it seems the majority are taking a much more conservative approach and waiting for the break before picking up the planting rate.

The World Agricultural Supply and Demand Estimates (WASDE) were released by the United States Department of Agriculture (USDA) on May 10th, 2019 and it showed a bearish tone for price with large northern hemisphere production and larger stocks. The USDA estimated every major growing nation will produce a larger crop than what was produced in the 2018/19 season.

The breakdown is as follows:

Care needs to be taken when assuming these numbers are correct. As we move through the key northern hemisphere production risk period (May/June) weather events can either make or break a crop, similar to that of September in Australian winter cropping. The trade will be closely monitoring weather models and if adverse weather hits any of these regions, particularly Russia, you could expect a sharp and violent global rally to occur.

US–China Trade Agreement (War).

The US and China are yet to reach an agreement for their ongoing dispute. Both countries continue to place more (and higher) tariffs and imports escalating tension not only between the two countries but for most major economies around the world. As a result of the rising tensions between the two largest economies in the world, markets all over are suffering including agricultural commodities. The latest news is President Trump announced he will meet face-to-face with Chinese President Xi Jinping. This will occur on June 28th – 29th during the G20 Summit being held in Japan and is being taken as a positive sign from the market that both men would like to end the trade war.

If an agreement is reached this will be supportive of agricultural markets as trade flows will improve.

What does it mean for your grain?

Although Australia is vulnerable to international price movements and there is a lot of news that could drive domestic prices in either direction, new crop production for Australia will likely be the key driver. Western Australia, Central to Northern NSW and other parts of the cropping belt are still in need of large rainfall events and it is difficult at this stage to see Australia producing an above average wheat crop of 24.4MMT. However, if we get the much awaited and anticipated break in weather within the correct sowing window, new crop prices should start to come under pressure. This, although not a good for the pocket per tonne, is good for Australian exports, making our grain competitive on the international market.

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