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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