Weekly Commentary Archives | Grain Brokers Australia

Lest we forget…

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Grain Brokers Australia Weekly Market Report

13th November, 2018

Lest we forget…

Outside of the US midterm elections, two events stole the spotlight in global grains markets over the past week. Firstly, the results of the most recent Saudi Arabian barley tender, and secondly, the World Agricultural Supply and Demand Estimates (WADSE) released by the United States Department of Agriculture (USDA).

Early last week the Saudi Arabian Grains Organisation (SAGO) announced that it had purchased 1.02 million metric tonnes of barley for January and February delivery. The average price was US$266.83 per metric tonne cost and freight (CFR), with all but one cargo going to Glencore. This was up just over US$6 on the previous tender but was still viewed as aggressive by the EU trade with values US$8-10 lower than most expectations.

SAGO reported that offers were received from most of the major origins including European Union (EU), North America (excluding Canada), South America, Australia and a number of Black Sea states. The only exporter not in the game at the moment is Australia. Assuming a freight of US$26 to Jeddah then that puts Aussie replacement around US$20 out of the money. The Black Sea and EU offers are pretty close into Jeddah, but the cheapest origin appears to be Argentina.

Interestingly, the spread between Jeddah and Arabian Gulf delivery has narrowed to just US$3 suggesting that a significant share of the execution will be from Argentina. Open export licenses for Argentine barley for the 2018/19 season currently stand at 1.13 MMT. This is around half of the estimated exportable surplus, but it will not all go out in this tender.

The majority of the barley production area is in the south of the country, so harvest is not expected to commence until late November, weather permitting, with the peak harvest period being December. Whilst December shipment will be possible, it is more likely that Russia, Ukraine and possibly EU origins will fill the early Saudi delivery periods with Argentina chiming in for six to eight of the late January and February 60,000 metric tonne slots.

Saudi Arabia is expected to import around 8.5MMT of feed barley in the current marketing year. In the 2017/18 season, Russia overtook Ukraine as the largest supplier of feed barley to the Kingdom. They supplied 29 per cent and 23 per cent respectively, with Germany (13 per cent) and Romania (10 per cent) rounding out the top four. That means that almost two-thirds of their requirements came from the Black Sea region.

The highlight of last week’s WADSE report were the dramatic changes to corn stocks in China. A day before the report was released the China National Grain & Oils Information Centre (CNGOIC) revised the countries corn production data for the previous decade. The overhaul was a result of last year’s agricultural census, the first in China for ten years. It highlights the amount of land in the northeast of China that has been bought into agricultural production in recent years and was not previously registered with the government for such purposes.

CNGOIC added a whopping 294MMT to their corn production numbers over the decade, more than 170MMT of that in the past four seasons. Last season’s production was adjusted from the previously reported 215.9MMT to 259MMT, an increase of 20 per cent. This was bought about by an increase in planted area from 35.5 million hectares to 42.4 million hectares.

There was obviously some frantic activity in the USDA building after the China update was released. In the end, they adopted the revised China production numbers (for now). The USDA increased China’s 2018/19 ending stocks by 149MMT to 207.5MMT. And this is after China has auctioned more than 100MMT for their strategic corn reserves this year. As a consequence, world ending stocks increased by 148.16MMT to 307.51MMT. That is almost double the October estimate. How does that happen? Only in China, I guess!

Obviously, domestic consumption in China has also been underestimated, or so the USDA believes, as the increase in ending stocks only account for about half of the aforementioned production adjustment since 2009. However, from a global trade viewpoint, the true indicator of world ending stocks is the one that excludes China and that remained relatively unchanged at 100MMT. That is despite the larger than expected decrease in estimated United States (US) corn yields from 180.8 bushels per acre (11.34 metric tonne per hectare) to 178.9 bushels per acre (11.22 metric tonne per hectare).

The USDA also revised China’s wheat production estimates following the data adjustment from the government. The 2018/19 projections were raised 4.5MMT to 132.5MMT and ending stocks for the same season were forecast to be 143.6 MMT, 7.5MMT higher due to increased supplies in prior years.

WADSE decreased the Australia wheat crop forecast by 1MMT to 17.5MMT. The export number was reduced by 1.5MMT to 11.5MMT. No surprise to see that both these numbers are still well above local consensus. They fudged the books a little by increasing 2018/19 carry in stocks to 5.7MMT so that the carryout number could remain stable at around 3MMT.

I would like to finish this week’s report by forgetting grain markets for a moment. Last Sunday was Remembrance Day, exactly one hundred years since the guns fell silent over Europe, marking an end to the First World War. To that point in time, it was the bloodiest and deadliest war the world had ever seen. It was coined “the war to end all wars”. Unfortunately, we now know that not to be true.

In 1914 the Australian population was less than five million. Almost 420,000 Australian’s enlisted for service. That was almost 10 per cent of the population. Many of us have forefathers who fought at Gallipoli, in Europe or the Middle East. Freedom is not a privilege, it is earnt, and too many Australians paid the ultimate sacrifice so that we could be free.

“They shall grow not old, as we that are left grow old; Age shall not weary them, nor the years condemn. At the going down of the sun and in the morning, we will remember them.”

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

The Twitter trade battle continues…

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The trade battle continues…

by Peter McMeekin – 6th November, 2018

We have all heard of bull markets and bear markets. Now we have ‘tweet’ markets after a post on Twitter by ‘The Don’ sent United States (US) futures markets sharply higher last Thursday and Friday (US time). The rally was based on the hope of progress in the trade negotiations with China.

President Donald Trump said that he had spoken with his Chinese counterpart, President Xi Jinping, and stated that the trade discussions were “moving along nicely” and that meetings were being scheduled during the G-20 summit due to take place in Argentina later this month.

Soybeans have been the commodity most affected by ‘Don’s Party’ since it began earlier this year. As news of a possible resolution to the trade impasse surfaced on Thursday, the bean sellers disappeared, and short covering sent the futures market more than 3 per cent higher. It hit a two-week high on Friday before late selling pushed the bourse lower into the close, but still up for the session and substantially up the week.

Time will tell if there is real progress or if this is simply Trump trying to appease his Midwest supporter base and talk up the stock market ahead of the US mid-term elections. Americans go to the polls on Tuesday and whilst Trump is not on the ballot paper the elections are considered a referendum on his performance since winning the 2016 presidential race.

With the Democrats expected to take control of the House, and possibly the Senate, these elections will most likely shape the final two years of ‘The Don’s’ presidency. The Democrats will use the power to severely limit what he can accomplish before the 2020 presidential elections.

Wheat had its own story with mounting concern over US winter wheat acres, either because it’s simply too wet to plant or because the rain-delayed bean harvest is pushing the wheat seeding program past final plant dates for crop insurance.

The Multiple Peril Crop Insurance (MPCI) policies must be purchased prior to planting and protects against the loss of crop yields from all types of natural causes including drought, excessive moisture, freeze, hail and disease, or the loss of revenue due to declines in prices of agricultural commodities. The US government subsidises grower premiums.

Similar products are available here in Australia, but they are quite costly. Weather certificates are a cheaper option gaining traction across many industries and are now available in agriculture. They are basically a derivative that protects income against a specified weather event such as too wet, too dry, too hot or too cold. Payments are triggered automatically based on Bureau of Meteorology data nearest your property, so there is no claim paperwork to be completed. There are rumours that the government is looking at providing tax incentives for weather certificates as part of their national drought initiative.

The wheat harvest in Argentina is progressing quite slowly with around 4.5 per cent of the total area harvested as of 1st November. Whilst yield reports are improving, the average yield is currently running at 1.6 metric tonne per hectare (mt/ha). The Buenos Aires Grain Exchange (BAGE) pared their wheat production estimate last week by 0.3 million metric tonne (MMT) 19.4 MMT. This compares to 18.5MMT last year.

The production downgrade was reportedly due to frost and hail damage. There were more frosts last week that could further damage crops in the later maturing provinces in the south of the country. Additional reductions to production numbers are distinctly possible as a result.

Argentinian wheat prices are reported to be quite firm in the nearby with exports focused on Brazil. Once significant new crop tonnage is available for export, prices are expected to better reflect export parity values which are around US$30 lower. Exports are currently forecast at 14.5MMT for the 2018/19 season. Brazil will take approximately 6MMT leaving around 8.5MMT that needs to find a home internationally.

Meanwhile, the Russians are at it again, saying that it may temporarily suspend wheat loading at five facilities in Rostov, and could do the same for the Krasnodar region, supposedly due to quality problems. However, the government is clearly concerned about domestic supply and prices, so it is more likely intended to slow the pace of exports without officially imposing restrictions.

There are signs that price is starting to swing exports away from Russia with sales increasingly negotiated as ‘optional origin’. In the event that Russian supplies tighten, this gives the exporter the option of sourcing their grain from other origins such as the EU, US or Argentina. This was supported by US export sales which are showing signs of improving on the back of a lower US dollar.

In normal years Australia would also be on that list but inelastic demand should account for the majority of our meagre exportable wheat surplus over the next twelve months. The same goes for barley, and canola exports will be negligible after domestic demand is taken into account.

The final Australian export numbers are in for the 2017/18 marketing season (October to September). Wheat exports in September were 865 thousand metric tonne (KMT), bringing the total for the twelve-month period to 13.8MMT. The wheat emphasis was on quality with Iraq being the biggest destination in September, accounting for almost 310KMT, while Indonesia took only one panamax cargo for the month. September barley exports were just under 90KMT, bringing the marketing year total to just over 6.1MMT.

Back to the US and it appears there is plenty to play out on the world stage regarding the China-US tariff war. China will have to come to the table at some point. They have more to lose economically as it exports far more to the US than it imports from the rival country. On the flip side, Trump has much to lose politically as President Xi Jinping will not be punished at the ballot box if and when the tariffs begin to harm ordinary people, especially the US farmer. This week’s mid-term election results will certainly be quite revealing from a global agricultural trade viewpoint.

Export Demand Surfaces as Harvest Ramps Up

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Export demand surfaces as harvest ramps up …

By Peter McMeekin

As harvest of the drought ravaged winter crop gains momentum here in Australia, the European farmer is also very busy, juggling their summer crop harvest program with the seeding of their winter cereals, oilseeds and pulses.

The European summer was warmer and significantly drier than normal, and these unseasonal weather conditions have continued into the autumn. Whilst this is the ideal scenario for the summer crop harvest, it is seriously hindering the planting and emergence of the winter crops in affected areas.

The driest regions stretch from northern France, through Belgium, northern Germany and into the drought declared areas of eastern Poland and northern Czech Republic. Further south, most of the Balkan Peninsula countries are also extremely dry. The seeding program is lagging behind the five-year average in all of these regions.

At the moment the rapeseed crop has been the most affected, decreasing the area sown and compromising emergence. The optimal sowing window is August through to mid-September in most of Europe and good early development before the winter sets in is critical for good yields.

Some farmers have been lucky enough to sow into moisture, some have sown dry, but others have simply abandoned their rapeseed program in favour of more attractively priced cereals, primarily wheat. Forecasts suggest that the European Union (EU) rapeseed area could be down as much as 8 per cent compared to last season.

The planting window for cereals is still open and the program is ongoing. The area planted to wheat is forecast to be higher than last year due to higher wheat prices. Add the swing from rapeseed and the program is significant. However, there is already talk of resowing in isolated pockets, due to extremely poor emergence.

Significant rainfall is still required in many regions to ensure that the potential area is actually planted. The risk here is that temperatures start to drop, and it becomes very difficult to get into fields before the winter sets in, leaving some European countries well short of their intended crop area. It is far too early to be raising any alarms but the potential impact on European wheat production and global prices are significant

The favourable weather sees the French corn harvest 13 days ahead of the long-term average. It is reportedly 91 per cent complete, up 10 points week-on-week and compares to 70 per cent at the same time last year.

In Ukraine, planting of the winter wheat and winter barley crops has been progressing smoothly, with both around 95 per cent complete. Their corn harvest is reported to be around 62 per cent complete, with 19.5 million metric tonne (MMT) in the bin. This puts them on track for a record 31.5MMT crop, up almost 30 per cent on last year.

There have been reports of renewed interest from the Chinese for Ukraine corn for the first quarter of 2019. China corn demand remains a mystery. They have auctioned more than 100MMT of reserve corn into their domestic markets this year. One would think that may spur some buying activity but the September imports of just 40 thousand metric tonne (KMT) were the lowest since November 2016.

Ukraine has reportedly exported 12.1MMT of grain since the beginning of July. This is 0.5MMT lower than at the same point last season and is made up of 7.1MMT of wheat, 2.5MMT of barley and 2.3MMT of corn. Ukraine expects their final grain harvest total for the season will be 64MMT, compared to 61.3MMT in 2017. This would be second only to 2016 when the total grain harvest was 66MMT.

Russia surprised the market by increasing their total 2018 grain production forecast to 109MMT. This is up from 106mmt last month after favourable weather in Siberia led to a better than expected wheat harvest in the east of the country. The higher production number leaves 38-39MMT of total grains available for export this season.

The trade interpreted this as another sign that the risk of export wheat restrictions was easing. However, Russian exports are running 34 per cent ahead of the same time last year and domestic consumers have been asking the government to assure wheat supply. Internal Russian wheat values continue to strengthen which suggests up-country supplies are tightening.

The recent downward move in wheat values saw Egypt (GASC) issue a wheat tender last week for mid-December delivery. Russia dominated once more, supplying 350KMT of the 470KMT purchased and Ukraine sold 60KMT into the tender. The biggest surprise was 60KMT of US origin soft red winter wheat offered at less than US$220 Free On Board (FOB). This was more than US$15 under the average of the successful Russian offers, all of which is negated by the difference in freight costs to Egypt. That said, it certainly put a fire under wheat futures at the end of last week.

Making news here in Australia over the past week was the 420kmt added to the shipping stem in Western Australia. This is the largest weekly increase since May this year but quite small relative to a more normal season. Some cargos may be destined for the east coast but some are undoubtedly going international. This confirms that Australian exporters are seeing demand at current FOB values and are competitive against Black Sea offers.

Whilst the lower Aussie dollar will certainly assist, inelastic Asian demand and the expected slowdown in Black Sea offers should ensure that Australia continues to pick up the required demand for an export wheat and barley program that will be the lowest in many years and could easily be under 8MMT and 3MMT respectively.

Aussie Sorghum Prospects Improve

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Aussie Sorghum Prospects Improve …

In North America, the huge summer crop harvest is finally moving into top gear after a run of weather-induced delays. At the same time, the winter wheat planting program is progressing well, and the delayed Canadian spring wheat harvest campaign is finally in the home stretch.

The United States (US) corn harvest is approaching 52% complete, which is ahead of the five-year average and well ahead of last season. Almost the entire crop is now mature, so it is just a case of getting a run of good weather and the progress number will jump significantly. The crop is rated 68 per cent good to excellent but there have been some isolated reports of rain damage such as sprouting, and yield reports are mixed compared to the lofty expectations.

On the soybean front, the US harvest is also approximately 50% complete, but contrary to corn, this is running behind both last year and the five-year average. Farmers were quick to get back into the fields to harvest beans once the wet weather subsided, but in some areas the rains and snow have already damaged the unharvested crop. The good to excellent crop rating dropped two points to 66 per cent and yield reports have also been disappointing.

Sorghum harvest is reported at 48 per cent complete in the US. This compares to 39 per cent the previous week. US sorghum is Australia’s biggest export competitor, particularly into China. The Chinese prefer the Aussie quality, but small crops and relatively high domestic demand has limited Australia’s export sales to the relatively inelastic China alcohol market in recent years. The effects of the east coast drought should ensure that next year will be no different.

According to the latest estimates, the US winter wheat crop is approximately 80 per cent planted. This is up fifteen percentage points on last week and on par with the five-year average. In Canada, the spring wheat harvest has been delayed due to snow. The Ag Ministry in Manitoba estimated that their spring wheat harvest was 98% complete but reports from Saskatchewan put their spring wheat harvest at just 75% complete. This is up week-on-week but is still well behind the same time last year. Not surprisingly, quality issues are surfacing as a result of the snow.

The prospects of a large sorghum plant in Australia this season have increased significantly with more rainfall across many parts of Queensland and northern New South Wales over the past week. Whilst it is far too early to call an end to the drought, the change in seasonal conditions since the beginning of October is certainly very welcome.

Most of the summer cropping parts of southern Queensland have now had at least 50mm of good soaking rain since the beginning of October. The eastern parts of the Darling Downs have been even more fortunate, with storms early in the month, and again on the weekend, bringing totals to more than 100mm in most regions.

Central Queensland has also been the beneficiary of good precipitation this month. The majority of the sorghum plant in that part of the world generally doesn’t happen until late December or January. More rain will be needed between now and then, but these falls are certainly a good start to their wet season.

Rainfall in northern New South Wales got off to a slower start than Queensland but most of the summer cropping districts have now recorded at least 50mm for the month. This part of Australia has been one of the hardest hit by the drought and the soils were extremely dry leading into the spring. The planting window is still wide open but a lot more rain is required in most districts to fill the profile and get the ball rolling.

Sorghum seeding activity has certainly ramped up in districts where adequate rainfall has been received. This year’s plant has the potential to be huge if seed sales are an accurate indication. According to reports, demand for seed has been extraordinary since the first rains in early October. I suspect that the media reports of seed running extremely low have been feeding the buying frenzy.

The volume of seed sales indicates the total plant could be as high as 1 million hectares. That would be a record area if it comes to fruition. However, I believe that there are a number of growers who have purchased seed that still have inadequate moisture and are not guaranteed of getting it planted, especially in New South Wales.

Whilst a record sorghum plant (if it eventuates) doesn’t necessarily mean a record crop, every rain event will increase potential yield and add confidence to production estimates. However, no matter the size of the sorghum crop, the first paddocks are unlikely to be harvested until mid-February. That is still four months away.

In the meantime, the eastern states’ consumer will still rely almost solely on shipments of white grains from Western Australia. A big sorghum harvest will not eliminate that requirement. It will simply slow the west to east grain movements and free up some Western Australia wheat and barley for the export market.

Interestingly, the Philippines purchased a 55,000 metric tonne cargo of Australian feed last week, for January/February shipment. This indicates that Western Australian values are competitive in the export market, effectively putting a floor under east coast cereal values based on full execution from the west.

New crop sorghum values in Queensland and New South Wales continue to trade at a significant discount to wheat and barley. Sorghum delivered Darling Downs for March/April 2019 is bid around $370. This compares to wheat and barley bids of about $455 and $445 respectively. The size of the plant, crop progress, final yield, quality and ultimate demand will determine movements in that spread until new crop stock is available to the consumer.

Call 1300 946 544 to discuss your grain marketing needs.

Tell ’em they’re dreamin’

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Grain Brokers Australia Weekly Market Report

by Peter McMeekin – 16th October, 2018

During the second week of each month of the year the United States Department of Agriculture (USDA) release their World Agricultural Supply & Demand Estimates (WASDE). The report provides the USDA’s comprehensive forecasts of supply and demand for both US and global crops such as wheat, rice, coarse grains, oilseeds and cotton.

In the days leading up to the report, the trade and speculators hypothesize about the numbers and position their trading books accordingly. In the days following the report the same people analyze the numbers, look for the holes (trading opportunities) and reposition accordingly.

There are two things for members to note about the monthly report. Invariably, there are surprises, and the USDA tends to be very slow to react to supply and demand changes outside of the US. When it comes to the rest of the world, it seems they are only concerned about being correct at the conclusion of the season rather than reflecting the production and consumption fluctuations within the season as they do with the US projections.

Take the Australian production numbers in last week’s report, for example. Wheat was decreased by only 1.5 million metric tonne (MMT) to 18.5MMT. Most of the domestic grain trade threw that number away more than a month ago and are probably around 16MMT, or lower today. Even that is possibly on the high side.

The Grain Industry Association of Western Australia (GIWA) released their latest crop report on Saturday and they have estimated wheat production at 8.15MMT, slashing almost 2MMT off their September estimate. That is a huge (maybe too huge) decrease and reflects the damage done by the late August and mid-September frosts and the extremely low rainfall in September – the most critical month for most regions.

Frosts and the dry September on the east coast have only added insult to injury for grain growers throughout Queensland, New South Wales and Victoria. With the decline in Victorian production in recent weeks combined with the huge area cut for hay, we expect that those three states will struggle to harvest more than 4MMT of wheat.

As South Australian members know, the state’s winter crop has not been immune to the issues that have beset the rest of the country in recent months, and harvest potential has suffered as a result. If we call wheat production in the Festival State 2.35MMT, and we believe the 20% drop in Western Australia, then that brings the total Australian production number to only 14.5MMT, 4MMT less than the USDA. That is scary!

Even scarier is that the USDA still has Australia in for 13MMT of wheat exports based on their optimistic production number and an unrealistically high carry in figure of 5.4MMT. The iconic Australian movie “The Castle” comes to mind here as we think Darryl Kerrigan would have a few words of wisdom in this situation.

The surprises continued on the barley front with the Australian production and export estimates left unchanged month-on-month at 7.8MMT and 5.8MMT respectively. Locally, most in the industry would have production in the region of 6MMT (with 60% of that in Western Australia) and exports around 3MMT.

The USDA’s optimistic Australian theme continued into oilseeds with the Australian canola crop predicted to be 2.9MMT. If the Western Australian crop is 1.3MMT, South Australia 0.3MMT and New South Wales and Victoria 0.6MMT combined, that comes to only 2.2MMT. There is a lot of pain in those numbers for the east coast crusher.

Rain in parts of southern Queensland and northern New South Wales over the past week has sorghum on the lips of many growers, traders and consumers. Whilst the falls have been quite patchy, and not enough to see a widescale plant at this stage, we are now seeing some of the gaps filled in, particularly on the inner Darling Downs.

We have to remember that rainfall in the summer cropping regions of Queensland and northern New South Wales has been well below average since the bumper crop in 2016. As result, the soil was bone dry and most regions would require at least 100mm to provide enough certainty for a large planting program.

That said, rain, after such a long dry spell, always brings optimism and sorghum growers will certainly be getting prepared to plant as soon as they have an adequate soil moisture profile. Undoubtedly, some will go early and take a punt on a portion of their area as the first sorghum off in the New Year will most likely command a premium.

Last week’s grain prices also reflected the change in the weather pattern, particularly in southern Queensland, the biggest feed grain demand region in Australia. Wheat and sorghum values delivered Darling Downs for March 2019 dropped around $15 to $450 and $370 respectively. Barley fell around $5 and is trading around $15 under wheat.

The size of the sorghum crop is the critical question here. At this stage in the season, production in the vicinity of 2MMT would be realistic. However, the rains need to continue, and they need to be far more widespread. If they haven’t arrived by mid-November, and some of the crop does not get planted, then production estimates will start to fall.

Consumer reaction will also be interesting. The Queensland feedlots have preferred wheat over sorghum for a number of years now, with the poultry sector the biggest sorghum consumer. High wheat prices and a substantial sorghum discount will certainly provide plenty of incentive to switch, as long as there is supply certainty for an extended period of time. The problem is, we are not remotely close to that scenario at this early stage in the northern wet season. Your broker will continue to keep you posted as consumers react.

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

Global supply issues likely to push wheat values higher …

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Global supply issues likely to push wheat values higher …

by Peter McMeekin – 9th October, 2018

The month of October heralds the start of a new grain marketing year here in Australia. The first week of the 2018/19 season has been highlighted by significant, but not drought-breaking, rainfall through parts of Queensland, New South Wales and Western Australia.

The falls in New South Wales were generally highest in the western pastoral zones (ideal for spring pasture growth), or in the northwestern cropping areas that either didn’t plant or have long been written off due to drought. There were some patchy falls east of the Newell Highway and they will stabilise production in those paddocks that have not already been cut for hay or been grazed off by hungry livestock.

Some of the most beneficial precipitation over the past week fell on the Darling Downs where some districts recorded up to 50mm. The deep, rich fertile soils have been starved of moisture for most of the year. It would normally be a sea of green at this time of the year as winter crops mature and new crop sorghum emerges. Some growers will manage to harvest some winter crop but most of the region has been in an enforced fallow period and will take at least 100mm to build an adequate moisture profile for a widescale summer crop plant.

In Western Australia, an extremely dry September and several severe frosts early in the month, had put downward pressure on potential record-breaking winter crop production estimates. Although patchy in some districts, the falls were very welcome and will certainly help to consolidate grain production across most of the state’s cropping zones.

The wet weather basically deserted Victoria and South Australia. Production forecasts are falling by the day in both states. As production certainty evaporates the drought-driven hay price is providing many growers with potential returns far greater than they could possibly hope for by taking the crop through to harvest.

Depending on quality, cereal hay is currently bringing up to $600 per tonne in southern Queensland and northern New South Wales, up to $550/tonne in central New South Wales, more than $500/tonne in Gippsland and around $400/tonne in the Goulburn Valley.
The burning question here is “Are these prices sustainable?”

As more and more crops are cut and baled, supply will increase. High prices such as these will also ration demand as it will simply be too expensive for many to continue feeding livestock. And the drought-breaking rains are a day closer. For those cutting and baling winter crop with the intention of selling, it is critical to lock in the good margins currently available before the market falls.

As the drought intensifies on the east coast, domestic grain demand has slowed exports dramatically. Australian consumers are buying wheat and barley away from traditional Asian export customers in order to meet their domestic requirements.

According to the Australia Bureau of Statistics (ABS), Australian wheat exports for the month of August were 760 thousand metric tonne (KMT), down from 1.35 million metric tonne (MMT). This puts exports to the end of August at 12.85MMT. With only the September data required to finalise the 2017/18 figures, it seems highly unlikely that they will surpass 14MMT for the full marketing year.

Barley exports for August were a paltry 245KMT, similar to the July number of 255KMT. Exports to the end of August for the 2017/18 season totalled 6MMT, with 37 per cent (2.2MMT) shipped as malting barley and 63 per cent (3.8MMT) shipped as feed barley.

Rising wheat futures and the result of last week’s Egyptian (GASC) tender both suggest that global wheat prices are trending higher. GASC confirmed 180KMT of purchases for early December arrival, all Russian origin and US$8 higher than the mid-September tender.

More than 650kmt was offered by Russian exporters in the early December delivery window, despite the latest threat (then denial) to halt or slow operations at a number of elevators in Krasnodar and Rostov due to phytosanitary issues. Romanian offers were US$6 higher than GASC purchases and French values were US$25 off the pace.

The most recent United States wheat export figures were as expected but did include sales to both Saudi Arabia and Brazil. The Black Sea is still the cheapest export origin, but lower supply, possible shipping restrictions, and the onset of winter will slow the export pace and the US is poised to seize the opportunity when it surfaces.

Elsewhere, Iraq bought Canadian wheat in a private tender and then announced that water shortages would reduce their planted area by 55 per cent, to 315 thousand hectares, all irrigated. This will mean increased imports in the coming year. In Canada, the harvest continues to be interrupted by snowfalls, with the latest Saskatchewan update putting the harvest at just 58 per cent complete, compared to 92 per cent at the same time last year.

As the Australian harvest picks up pace there are many loose ends in the global wheat balance sheet. The United States Department of Agriculture (USDA) will release their latest World Agricultural Supply and Demand Estimates (WADSE) on Thursday night (Aussie time), and there should be some significant changes.

Global supply issues are likely to continue, adding impetus to the recent upward price trend.
Peter McMeekin is a consultant to Grain Brokers Australia. Call 1300 946 544 to discuss your grain marketing needs.

Where eagles dare …

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Where eagles dare …

Weekly Commentary > by Peter McMeekin

No matter where you are in the world, everybody loves a public holiday. For most people in Australia, the weekend just past is one such example.

The official reason for the celebration varies from state to state, but for most, it is unofficially known as footy finals weekend. The two largest codes of football, Australian Football League (AFL) and National Rugby League (NRL), hold their grand finals on Saturday and Sunday respectively.

Even though Western Australia (WA) is one state that does not celebrate the October long weekend (they have it the weekend prior), they have plenty to celebrate this week after the West Coast Eagles soared to their fourth grand final victory since entering the competition in 1987.

The convocation of fans that made the trek across the Nullarbor was seen celebrating long and hard in the streets and bars of Melbourne, as were supporters across the country. Football may be a religion to many, but I am sure that some of the celebrations will go well past the traditional Sunday ritual.

Whilst it is far too early to celebrate from a winter crop viewpoint, the WA farmer will undoubtedly win that game as well in 2018. Above average rainfall across the growing season will see above average production, despite the recent frost scares.

The eastern states are the complete opposite. Unfortunately, the only flag being flown across many districts is white. Year-to-date rainfall registrations at numerous locations are in the lowest decile or record lows, and the latest three-month weather outlook continues the extremely dry theme.

The parts of Victoria and South Australia that had been holding up well are now faltering, and production estimates are falling every day. Rainfall now will only arrest that decline. National wheat and barley production is decreasing as a consequence. My supply estimates have them fast approaching 16.3 million metric tonne (MMT) and 6.5MMT respectively and further downward revisions are quite likely.

Whilst we do not officially have an El Niño event in Australia the weather is certainly acting and trending in that direction. Dry in Australia quite often means wet, or above average, rainfall on the other side of the Pacific Ocean.

Whilst there are a few dry areas in Argentina, the latest estimate from the Buenos Aires Grains Exchange (BAGE) puts wheat production at a record 19.7MMT, up 10.7 per cent from 17.8MMT in 2017. This is in line with the United States Department of Agriculture Estimates (USDA) of 19.5MMT. This will increase their exportable surplus and at current values could potentially displace French wheat into north African destinations such as Algeria.

Whilst it is early days from a summer crop perspective, the BAGE production estimates indicate a significant rebound from last season’s drought affected numbers. This suggests that the soil moisture profile across most of the summer cropping area is quite favourable for this time in the season.

Argentinian corn production is forecast at a record 43MMT, an increase of 36 per cent compared to the 2017/18 production of 31.7MMT. The soybean production estimate is 53MMT compared to 35.1MMT last season, an increase of 51 per cent year-on-year.

In Brazil, the soybean crop is expected to be a record 122MMT. There has been much talk over the last twelve months around Brazil surpassing the United States (US) as the world’s biggest producer of soybeans. However, the US has answered that challenge this season with near-record yields forecast and total production expected to be around 124.8MMT.

Whilst the timing of the South American summer crop harvest is six months after the US, big crops south of the equator will certainly put more pressure on the US export picture. The potential disruption to traditional global supply channels, without a resolution to Don’s Party (China tariff war), is huge.

Whilst it appears China will decrease imports of soybeans and wait for new crop South American supply, there is talk that Brazil will continue to run down their stocks to meet nearby China demand and then import US beans to satisfy domestic demand until the new crop harvest. Stranger things have happened!

I guess the opposite has been happening here in the Australian market, simply because of the justifiably strict import quarantine protocols. International shipments from the traditional export states of South Australia and Western Australia have essentially been put on hold in the back end of our marketing year in order to satisfy burgeoning domestic demand in New South Wales and Queensland.

The major difference here in Australia is that this scenario still has more than twelve months to play. WA may hold the AFL premiership cup and flag until this time next year, but a far bigger task awaits. To loosely paraphrase a famous line from the classic World War II movie Where Eagles Dare: The mission is clear. Get the crop in (harvested), get it to port, get it out (ship it east).

The boats will keep coming …

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The boats will keep coming …

Weekly Commentary by Peter McMeekin

The increasing requirements of Australia’s domestic grain market have been under the spotlight in recent months as the drought worsens across the eastern states. This is the second consecutive year that we have seen below average grain production in New South Wales and Queensland.

This has led to a significant deficit of feed grains, milling wheat, and malting barley in the eastern states. This grain shortfall must be filled by imports of suitable grain from regions of surplus.

In normal production years, it is quite traditional for grain to move interstate to satisfy domestic demand. New South Wales (NSW) is generally the biggest producer of grain on the east coast and commonly has a surplus that is available to interstate domestic consumers or the export market. Wheat and barley produced in southern NSW regularly make their way into the Victorian market and the same commodities produced in northern NSW are always required to satisfy the huge feed grain demand in southern Queensland.

Australia is traditionally a significant exporter of grain. Consequently, domestic grain prices tend to be highly correlated to world prices. However, in years of drought, the supply and demand imbalance can often lead to grain prices in the affected areas increasing significantly. In fact, they can increase to such an extent that they exceed import parity.

Import parity price is the value of a commodity imported from another country at a location within the importing country (usually the port of entry). It can help to determine whether importing a particular commodity is cheaper or more expensive than procuring it within the country at that same location.

Widescale droughts in Australia, such as we are experiencing this year, always invoke the inevitable question. Why don’t we import grain from overseas if it is cheaper than moving grain within the country? At current prices, United States corn could be imported into Brisbane around $130 (Aussie) less than bringing wheat around the coast from Western Australia.

The Commonwealth Department of Agriculture and Water Resources (DAWR) is responsible for administering two sets of requirements for imported food. These requirements are designed to protect Australia against biosecurity risks, under the Biosecurity Act 2015, and to address food safety, as set out in the Imported Food Control Act 1992.

Australia has imported grain in previous droughts, the most recent being from the United Kingdom in 2003. In accordance with the biosecurity provisions of the import permits issued at the time, the grain had to be devitalised in dedicated processing plants near the ports into which the grain was imported. It then made its way to nearby feed grain consumers, primarily the poultry industry. The grain could not be transported as viable seed into the cropping regions, and those same restrictions would still apply.

Fast forward to 2018 and the geographical footprint of Australia’s feed grain consumers has changed. No longer are a significant proportion located close to the ports. Much of the investment in the last fifteen years has been made up-country, closer to the grain production regions. The expansion of the lotfeeding sector, particularly in southern Queensland, has been dramatic. This means that a vast majority of the east coast feed grain deficit is located within the cropping regions rather than close to the ports.

The Biosecurity Act 2015 requires that all imports of food comply with strict biosecurity conditions for their import. The DAWR is not responsible for ensuring a cattle feedlot on the Darling Downs or a poultry operation in the Riverina has adequate feed grain supplies. Their mandate is to ensure that Australia is protected from harmful pests and diseases (such as exotic weeds or foot and mouth disease) and they work with the import cargo and shipping industries to enforce the strict quarantine regulations.

These regulatory requirements have been under increased scrutiny in the last two years with the discovery of the highly contagious white spot disease in Queensland prawns in 2016. Australia was one of the few countries in the world that had remained free of the disease that affects crustaceans, but it has already decimated prawn farms in parts of Queensland since the outbreak.

Biosecurity breaches such as this have only heightened the resolve of authorities to protect the viability of agriculture in Australia. It is a A$60 billion industry that employs thousands and contributes 3 per cent to the country’s gross domestic product (GDP).

The movement of grain within Australia, whether it be by road, rail or sea does not attract the same biosecurity restrictions as foreign imports. Whilst the drought may be severe in the eastern states, Australia will still have an exportable surplus courtesy of an above average season in Western Australia.

Whilst this is the case the shipping lineup (stem) at Western Australia’s ports will continue to be littered with vessels loading, destination Australia. The boats will keep coming until the east coast deficit is rectified.

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