Misc Archives | Grain Brokers Australia

Strong demand continues in the midst of production uncertainty…

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12th March, 2019
Strong demand continues in the midst of production uncertainty…
The Australian cattle market has been in retreat in recent weeks as the continued dry on the east coast forces cattle producers to sell down their herd. There is little or no pasture across most of New South Wales and southern Queensland, water supplies are drying up on many farms, and the cost of supplementary feeding is exceptionally high.
Traditional livestock selling centres such as Dubbo, Wagga Wagga, Casino and Tamworth in New South Wales and Dalby, Roma and Emerald in Queensland have all seen a substantial increase in yardings over the past few weeks. Some of these cattle will go direct to slaughter, but those that are suitable will make their way into the feedlot sector.
Meanwhile, the number of cattle on feed in Australia fell modestly in the final quarter of 2018, according to the latest Australian Lot Feeders Association (ALFA) and Meat and Livestock Australia (MLA) quarterly feedlot survey. The numbers, released last week, revealed that 2018 closed with just over 1.11 million head in feedlots across the country, a fall of just 1.4 per cent from the previous quarter’s record.
The result means that 2018 is the first year in history where there have been over one million head of cattle in the Australian feedlot system for the entire year. The unrelenting drought in the eastern states has been a significant contributing factor, with primary producers forced to offload their stock earlier than usual and in higher numbers.
The overwhelming sentiment is that feedlot numbers will remain strong in the first quarter of 2019. Export demand for Australian beef, particularly from China, remains strong, and the falling Aussie dollar has been assisting the cause. February shipments of Australian beef increased 11 per cent compared to the same month last year.
The state of Queensland dominates the Australian feedlot sector with just over 631 thousand head, or 56.7 per cent of the total number of cattle on feed. New South Wales has the second biggest herd, with around 326 thousand head, or 29.5 per cent of the total. Collectively, these two eastern states make up 86.2 per cent of cattle on feed in the country.
It is this dominance and concentration of demand that has been the overriding driver of feed grain movements from west to east over the last fifteen months. Poor grain production in northern New South Wales and Queensland for the previous two winters and three summers (including this summer) has led to a huge deficit.
If you add demand from the pig and poultry sectors, and from the specialised milling wheat and malting barley consumers, total wheat and barley movements into the ports of Brisbane, Newcastle and Port Kembla will most likely exceed 4 million metric tonnes (MMT) by the end of the third quarter in 2019.
On the international front, yet another month has passed, and yet another World Agricultural Supply and Demand Estimates (WASDE) report has been released by the United States Department of Agriculture (USDA). On the whole, it was quite benign, and futures markets reacted accordingly.
World wheat production for the 2018/19 marketing year is forecast to fall by 1.7MMT to 733MMT compared to the February estimate. Kazakhstan was the big mover with production down 1MMT, Argentina was down 0.3MMT, and Australia was up 0.3MMT to 17.3MMT.
Global wheat demand has been lowered by 5.1MMT to 742MMT compared to last month. The big mover here was India where demand was reduced by 3MMT, but their ending stocks were increased by 3MMT. The USDA have to balance the books somehow! US ending stocks were up 1.2MMT which is more than 1MMT below last year’s carry out, and the US wheat plantings are the lowest in more than a hundred years.
World barley production was increased by a meagre 0.1MMT compared to the February forecast. However, Australian production was increased by 1MMT to 8.3MMT and is now broadly in line with trade consensus in Australia. Global demand was decreased by 0.4MMT, but within that number was a decrease in China by 0.5MMT and an increase in Australia of, you guessed it, 1MMT.
Speaking of barley, there was a significant turnaround in market sentiment last week with old crop grower bids firming in both South Australia (up around $10) and Western Australia (up around $20). The renewed interest came from the big end of town, so it is most likely export driven.
Market rumours suggest that there may have been a delay to the imposition of Chinese import restrictions stemming from the current anti-dumping investigation. The Australian government and exporters have been expecting a decision for the last two weeks.
China has reportedly realised that they will need more Australian barley, particularly malting barley, before new crop Black Sea stocks become available in July. Sources suggest that Beijing may have deferred a decision until May. Maybe just a rumour or maybe it has some substance. Only time, and the Chinese, will tell.
In the meantime, grain consumers in northern New South Wales and southern Queensland are getting increasingly concerned about the continued dry and its impact on winter crop production in their back yard. New crop stocks would generally be available to the consumer when harvest ramps up early in the fourth quarter of the year.
However, several big end users are believed to have taken some risk off the table by locking away a proportion of their wheat and barley requirements through to the end of the year, and even into the first half of 2020. Soil moisture levels across the entire region are well below average for this time of the year and the wet season is winding down, so the chances of an above average crop are very low, and the chances of a below average crop are quite high at the moment.
The carry-in stocks will be zero, and any production will be keenly sought so it would seem quite prudent to take some cover at this juncture. If it is the highest price that these consumers pay for their 2019/20 requirements, then happy days!
Call your local Grain Brokers Australia representative on 1300 946 544 to discuss your grain marketing needs.

Desperately Seeking Saudi

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Desperately seeking Saudi…

Global barley values have been in decline for much of this year as the lack of demand from key importers continues to weigh heavily on international markets. This is despite the latest World Agricultural Supply and Demand Estimates (WASDE) having demand outstripping supply in the 2018/19 marketing year (July 2018 to June 2019).

Droughts in Australia and parts of the European Union in 2018 underpinned global values early last year. World supplies were forecast to drop to a 35 year low. However, it appears that the higher prices last year led to a decrease in demand as consumers turned to cheaper alternatives such as corn.

The downturn in demand is being reflected by the absence of both Saudi Arabia and China in recent months. The Saudi Arabian Grain Organisation (SAGO) has purchased 5.4 million metric tonnes (MMT) since the marketing year began. This is approximately 17 per cent higher than at the same time last year.

But SAGO has not issued a barley import tender since early November 2018, when it booked just over 1MMT for January and February delivery. Most of the barley imported into Saudi Arabia goes to domestic farmers to feed their sheep, goats and camels. Pasture has reportedly been abundant over the winter as a result of above average rainfall, and this is forecast to continue for at least another two months.

The washup here is that Saudi Arabian demand could fall by up to 800,000 metric tonnes (MT) to around 7.7MMT in the current marketing year. This would lead to a reduction in SAGO imports, possibly to as low as 7.5MMT. This is a decrease of 500,000MT compared to the 2017/18 trade year.

This is also a full 1MMT lower than the latest official USDA forecast of 8.5MMT, released in the WASDE report earlier this month. If Saudi Arabian imports do end up at 7.5MMT this season, this will naturally decrease world demand, add to global ending stocks and take a little bit of pressure off the very tight barley stocks to use ratio of 12.6 per cent.

According to trade sources, barley prices in the EU have fallen by more than US$20 in the last five weeks. Long holders, particularly of French barley, have reportedly folded to market pressure and liquidated their positions in the last few weeks, pushing prices dramatically lower. French feed barley closed last week offered at US$203 free on board (FOB). German and Baltic offers are holding up a little better, closing last week at a US$10 premium to French values.

Black Sea exporters appear to be out of the old crop game at the moment, being quoted at US$230FOB. But the new crop is a different story. Conditions across Europe and the Black Sea region have been quite favourable for the maturing barley crop. As a result, new crop Black Sea values are sub-US$ 200FOB and exports will be available in July. As the availability of new crop stock gets closer, this inverse will have serious implications for old crop demand and global values.

The other major barley supply and demand change in the February WASDE report was a decrease in Chinese demand of 1MMT. This was the major contributor to the forecast increase in global ending stocks of almost 500,000MT. Small increases were also made to Argentinian and Saudi Arabian ending stocks and the EU number was decreased slightly.

Australia is traditionally the leading supplier of feed and malting barley into China. However, the current anti-dumping investigation by China has had a dramatic impact on forward demand, and the Australian barley market is starting to feel the pinch.

Exporters have been frantically executing most of the China business that was on their books when the anti-dumping action was announced back in late November, and a significant proportion of barley currently on the export stem for the last half of February and for March is believed to be destined for China. It is demand beyond that point that is the issue.

Both the trade and the government have submitted the required paperwork and delegations have met with Chinese officials in recent weeks. It is basically a waiting game at the moment, with an interim measure announcement expected from the Chinese in the next few weeks.

Domestic corn is currently filling much of the demand void in China but there is an expectation within the trade that they will need to buy some Australian barley before the new crop Black Sea is available. Only time will tell.

Australian barley production from the last harvest ended up at around 8.5MMT. This was much bigger than expected leading into harvest, with Western Australian production surpassing 5MMT for the first time ever. While not a record year, the South Australian barley harvest also pleased to the upside compared to preharvest expectations.

Both the South Australian and Western Australian grower has sold around 90 per cent of their barley production and, as a consequence, the long now sits with the domestic trade. With China out of the market and uncertainty around Saudi Arabian intentions, exporters are anxious to exit their positions ahead of the new crop inverse.

This has placed significant downward pressure on domestic prices and has flowed onto export values which have decreased to around US$220FOB Western Australian ports. At this level, Australia is well placed to pick up Saudi Arabian demand when they eventually tender.

This decrease is also being reflected on the east coast. Late last week feed barley was trading at around $380 delivered Darling Downs, a fall of about $20 this month. Wheat values delivered Darling Downs have also decreased over the same period but not to the same degree. As a result, feed barley is now trading at about a $55 discount to wheat.

The sorghum crop is getting smaller by the day and the market closed last week at $360 delivered Darling Downs. This is only $20 under feed barley. At these spreads, the feed barley inclusion rate in stockfeed rations will be maximised at the expense of wheat and sorghum. This, in turn, will mean increased domestic demand for Western Australian feed barley, but it will certainly not be enough to soak up the bigger than expected exportable surplus.

The global barley market is on the back foot due to the ongoing absence of Saudi Arabia. With China not buying, Saudi Arabia is the only other volume home for Australia’s exportable surplus. The sharp fall in global prices bought Tunisia to the table last week. If it doesn’t draw out a SAGO tender in the next few weeks, the Aussie trade will get increasingly anxious and will be forced to have a serious look at overall Saudi Arabian demand for the last quarter of the current marketing year.

Peter McMeekin is a consultant to Grain Brokers Australia. Call 1300 946 544 to discuss your grain marketing needs.

Trying to forget the politics for a moment…  

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Trying to forget the politics for a moment…

A lack of adequate snow cover to protect the winter crop against cold weather is raising some concerns in parts of the northern hemisphere. The snow cover acts as an insulation layer for the hibernating wheat and barley crops. If this is not present the exposed crop becomes susceptible to damage, and even death, from freezing winter temperatures.

The areas of adequate snow cover are confined to eastern Europe and the Balkans. This leaves the crop in the central and western regions susceptible to the sub-zero temperatures that are forecast for most of Europe over the next few weeks. Rainfall will alleviate the immediate issue in isolated regions, but an exposed crop remains very susceptible to a cold snap.

No such issues exist in Russia or their Former Soviet Union (FSU) neighbours where the snow cover is reported to be excellent and the winter crop in good shape. The snow cover is so thick it has actually been playing havoc with the movement of wheat and barley to the Black Sea ports for export in recent weeks.

Across the Atlantic, it has been bitterly cold in the northern parts of the US. The market has been finding support on worries that recent snowfalls and the forecast snowstorms may not be extensive enough to protect the winter crop adequately. Freezing temperatures are forecast for much of the Plains and Midwest through to the end of January. The snowstorms are expected to be less severe in the Southern Plains, but so too are the temperatures, reducing the potential weather and production risk in those counties.

US wheat futures closed out last week in positive territory on the back of firmer Black Sea export values. There appears to be a renewed feeling that the market and price will ensure Russian domestic requirements are met by restricting exports enough to negate the need for government intervention. Available shipping data suggests that there has been a sharp drop in Black Sea wheat loadings to open the New Year despite their dominance of recent Egyptian tenders.

Rumours also abound of fresh US export wheat business being concluded along with reports of optional origin sales being switched to US execution. US hard red winter wheat is now around US$3-5 cheaper than both Russian and EU origin wheat. However, all of this remains anecdotal as long as the government shut down continues and the key United States Department of Agriculture (USDA) market data is not being collated.

The window for the US and EU to gain wheat export traction before new crop grain is available gets smaller with every unsuccessful Egyptian tender, not that they are the only option. The market is also expecting vastly improved supplies in 2019/20 as global cereal production rebounds from drought reduced production in many jurisdictions this season.

European Union wheat production, for example, is forecast to be 147 million metric tonnes (MMT), an increase of 16% on this season’s production of 127 MMT. With a return to more normal seasonal conditions, both Australian and Russian production could easily be up at least 6MMT. That will bring production in the major exporting countries back to around 400MMT, up from 364MMT this season.

Weakness in corn futures values in the middle of last week bought out some buyers with South Korean importers booking around 260,000 metric tonnes (MT) in snap tenders. The biggest purchase of 135,000MT was made by the country’s largest stockfeed manufacturer, Nonghyup Feed Inc (NOFI).

The export interest, and the ongoing weather concerns in South America, pushed corn futures higher into last week’s close. US corn exported from the Gulf of Mexico is now cheaper than Ukraine origin corn delivered into many Mediterranean destinations. Pacific North West (PNW) export prices are also competitive trading on a par with Argentinian values into the Korean Peninsula.

Total precipitation in the Brazilian state of Mato Grosso this summer crop season is running around 35 per cent below last year. The state produces almost 40 per cent of Brazil’s safrinha corn crop. The first corn crop only makes up about a third of Brazil’s total corn production with the second crop (safrinha) making up the balance. This crop is planted immediately after the soybean crop is harvested and is the major contributor to their export program. With the soybean harvest ramping up in Brazil at the moment the safrinha plantings have also just commenced, with harvest expected in May.

Market talk suggests China is bidding for Ukraine corn at evens to PNW export values. Given the freight spread is around US$18 in favour of the US, significant sales to China are indeed possible if a resolution can be found to the ongoing China-US trade war.

Speaking of China, African swine fever is still a significant concern with 916,000 pigs culled after around 100 outbreaks of the disease had been recorded in 24 provinces since August last year. While that seems a high number, it is small relative to the total pig population of around 430 million head. China slaughtered almost 700 million pigs in 2017.

With US corn prices now competitive internationally, downside from current price levels appears limited. US corn is currently the cheapest in the world and will most likely remain so until the new crop South American harvest comes on stream in the second quarter of the year. Here again, the shutdown means we have no idea if the US is gaining traction in global markets.

The political issues of recent weeks have been a massive distraction in global grain markets. The dearth of crucial information and statistics has created a market that is merely treading water, with no direction and no rudder. As a result, the trade focus has now turned to the weather extremes being experienced across the world and the possible global supply ramifications. But that is only one side of the critical supply and demand equation.

Peter McMeekin is a consultant to Grain Brokers Australia. Call 1300 946 544 to discuss your grain marketing needs.

A new year starts with the same old stories …  

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A new year starts with the same old stories …

The New Year celebrations are now behind us and 2018 has been happily farewelled by many growers across the globe, particularly by a vast majority of eastern Australia’s winter crop farmers. Nonetheless, many of the same old issues continue to generate volatility on both global futures and domestic grain markets right across the globe.

World wheat values remain supported as rumours of supply tightness, and possible export restrictions, in Russia linger. Fresh news is limited as most of the Black Sea region only return to work from holidays this week. Russia has been dominating global wheat trade so far this marketing year but US hard red winter wheat is now priced to buy demand, trading last week at a US$10 discount to Russian export values. That said, the trade is waiting on a sustained improvement in US export sales before slipping into their buying shoes.

The market did rally late last week on the news that Algeria had rejected a cargo of Argentine wheat on the grounds that it was below contractual quality standards. Argentina exported around 900,000 metric tonnes of wheat to Algeria last year.  The north African country is Argentina’s second-biggest wheat client. Argentine authorities are confident that the quality issue is an isolated case.

The trade stand-off between China and the United States (US) appears no closer to a resolution despite mutterings from the White House, and tweets from The Don himself, suggesting all is on track. There are also unconfirmed rumours of more purchases of US soybeans by the Chinese government owned Sinograin. One day the soybean market is up on speculation of a resolution and sales. The next day the market falls as profit takers jump in to take risk off the table.

A US trade delegation is due in Beijing this week. Some reports say it is to continue the discussions (meaning progress has been slow) and others say it is to finalise an agreement (maybe the Don’s “going well” tweets are accurate). Nevertheless, one fly in the ointment could well be President Xi Jinping’s recently enunciated position on the reunification of Taiwan. Me thinks this stalemate may well continue for some time yet.

And now we have another game in play in the US. In simple terms, Trump wants to build a wall between the US and Mexico, but the Democrats don’t agree with his border control policy. The impasse has led to the shutdown of non-essential government services across the country. More than 800,000 federal government workers have been without pay since the 22nd December.

One such non-essential agency is the United States Department of Agriculture (USDA). The lapse in funding means that key USDA reports, due for release this week, will not be published. Reports such as the World Agricultural Supply and Demand Estimates (WASDE) along with US production and US stock reports will be delayed until at least one week after funding has been restored. With the Democrats now in control of the House of Representatives it could be a long wait!

The WASDE report is a monthly publication that includes production and trade forecasts for the US and world wheat, rice, coarse grains (corn, barley, sorghum, and oats), oilseeds (soybeans, rapeseed, palm), and cotton. For many traders and consumers across the globe, this report is an essential component of their market analysis and strategy development.

The January WASDE report is particularly important as it will likely contain the final production numbers for the US corn and soybeans crops as well as updating the South American summer crop production estimates. There are growing trade expectations of a lower final US corn yield compared to the December WASDE estimate.

The December weather concerns across many regions of Brazil (extremely dry) and Argentina (exceptionally wet) have continued into the new year putting downward pressure on both soybean and corn production forecasts in both countries. The dry is also having a detrimental impact on summer crop production in neighbouring Mercosur trade pact member countries, Uruguay and Paraguay.

Another victim of the partial US government shutdown has been the trade aid payments to US farmers. The payments are designed to help (and appease) farmers affected by the US trade war with China. A second round of payments was authorised just prior to Christmas but they have not been paid. This comes at a time when US farmers are securing finance for their next summer crop program and it may reduce the amount of money banks are prepared to lend farmers.

Harvest here in Australia is now winding down with pockets in the Western Districts of Victoria, small areas of the lower south-east and lower Eyre Peninsula regions in South Australia and some late Albany and Kwinana crops still to be harvested. Favourable weather will see most of this knocked over in the next week or so.

Receivals in Western Australia have now exceeded 16 million metric tonnes (MMT). Wheat makes up around 9.3MMT of this total, barley around 4.7MMT and canola just over 1.4MMT. In South Australia total bulk handler receivals are approaching 4MMT and are expected to surpass that number by the time final harvest deliveries have been received.

Major bulk handler receivals in the eastern states total around 2MMT and probably constitute around 35% of the total crop. The balance is either sitting in private stores, on-farm or has already been received directly into consumer storage facilities across Queensland, New South Wales and Victoria.

Experience says that no two years are ever the same in agriculture. New global supply and demand challenges will emerge in 2019 as old ones are resolved. But for now, political interference in the jurisdictions of Presidents XI, Trump and Putin continue to dominate grain market news wires.

As legendary American folk rock duo Simon and Garfunkel wrote and sang many years ago: It’s the same old story!

Peter McMeekin is a consultant to Grain Brokers Australia. Call 1300 946 544 to discuss your grain mark

Grain Brokers grain in hand

Grower Events

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Grower Events – March 2018

Senior Grain Brokers from our team along with and expert guest speakers will be touring WA from 19 – 23 March and providing Growers with information regarding:

  • Season Overview 2017/18
  • Marketing
  • International Grain Markets
  • Weather Risk Management
  • Lime
  • Safe Farming

These events are a great opportunity for Growers to ask questions and network with our team and other growers.
Refreshments and food will be provided and entry is free.

 REGISTER

If you would like to attend any of the events below please email or phone our friendly team:
bids@grainbrokers.com.au  or call PH (08) 9367 2866

TOWNEVENT LOCATIONDATEDAYTIME
YerecoinYerecoin Hall19 MarchMonday 2:30pm - 5:30pm
YealeringYealering Bowling Club20 MarchTuesday 9:45am - 12:15pm
DumbleyungGraham Shearing Shed20 MarchTuesday4:45pm - 7:30pm
BroomehillBroomehill Golf Club21 MarchWednesday9:45am - 12:15pm
South StirlingSouth Stirling Hall21 MarchWednesday4:45pm - 7:30pm
RavensthorpeLandmark (Shed)22 MarchThursday9:45am - 12:15pm
ScaddanScaddan Golf Course22 MarchThursday5pm - 7:30pm
Moorine RockMoorine Rock Tennis Club23 MarchFriday11am - 1:30pm

Download the Grower Events WA

Win 2 nights at Tribe Hotel, Perth

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Grain Brokers Australia are giving away two nights’ accommodation for two people at the new brand of hotel, TRIBE in West Perth.

Tribe Perth is characterised by contemporary, innovative and boutique design, along with its prominent position next to Kings Park just minutes from the city’s restaurants, bars and tourist attractions.

The hotel comes with free broadband, smart TVs, a digital reading collection, and free streaming movies on demand. The hotel will also include large common areas that reflect homely living rooms and a café and bar, TRIBE Foods. All rooms come with complimentary unlimited WiFi, Nespresso pod coffee machines, T2 Tea and bottled water.

TO ENTER

For those not receiving our Daily Pricing Summary, to enter simply visit us at either Mingenew, Dowerin or Newdegate Field Days and sign up for your free month trial.

If you’re a current customer or on a free trial of our Daily Pricing Summary you will automatically go in the draw to win – no need to do anything.

Click here for the Terms and Conditions.

Start your 30-day trial now or call us on 1300 946 544 for more information. Sign up today