Weekly Commentary Archives | Grain Brokers Australia

USDA Shocks the Market

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Grain Brokers Australia Weekly Market Report
July 2, 2019
USDA shocks the market…
The United States Department of Agriculture (USDA) released quite startling corn and soybean planting intention numbers late last week, and the futures markets reacted accordingly. The trade was left scratching their heads as the corn number was well above expectations, and the soybean number was the opposite.
According to the USDA, United States (US) farmers have planted 91.7 million acres (37.1 million hectares) of corn, well above the average industry forecast of 86.7 million acres (35.1 million hectares), and only slightly lower than the prospective planting number of 92.8 million acres (37.6 million hectares) released back in March.
In the World Agricultural Supply and Demand Estimates (WASDE) report released earlier in June, the USDA revised the corn area down by 3 million acres (1.2 million hectares) to 89.8 million acres (36.3 million hectares). This was due to the widespread rains and flooding through much of the Corn Belt. It was, therefore, a huge surprise to see the number increase so significantly when the weather continued to delay planting throughout the month.
All this took the wind out of corn futures, with the September contract finishing down 21 cents per bushel (AU$11.80 per metric tonne), or 4.71 per cent, at the close of Friday trade. If the USDA had not lowered the corn area in their June WASDE report, the latest number would probably have been greeted with a far more subdued reaction.
However, after the market closed the USDA said that the National Agricultural Statistics Service (NASS) will conduct a second survey of growers in 14 states and if the newly collected data justify any changes, NASS will publish updated acreage estimates in the Crop Production report due to be released on Monday, August 12.
The anomaly probably occurs as the survey was conducted in the first two weeks of June. At the time of the survey, the area that farmers intended to plant, but had not yet planted due to excessive rainfall, was 15.5 million acres (6.3 million hectares). They may have intended to plant the corn, but the big question is what proportion of that area was actually seeded by month end? Most in the trade believe it is far less than the USDA has reported.
On the soybean front, the USDA reported that US farmers had planted 80 million acres (32.4 million hectares), 4.6 million acres (1.9 million hectares) less than both the average industry estimate and the prospective planting number released back in March.
Soybean futures did not react as much as corn, but they did rally after three down days in a row. The September contract closed 11 cents per bushel (AU$5.75), or 1.22 per cent higher, at the end of last week’s trade.
Improved harvest weather in the US and the fall in corn values pushed wheat prices sharply lower late last week as well. Soft Red Winter futures closed 19½ c/bu (AU$10.20), or 3.57 per cent lower on Friday, erasing all of the week’s gains and finishing only a tad higher than the first trading day in June.
The winter wheat harvest is well and truly underway in the southern plains of the US. The pace is picking up with the weather turning warmer and drier, but it is still lagging the 5-year average by 14 percentage points. Yields reports have been excellent thus far, and the average protein has been improving as the harvest moves north.
Harvest is also underway in Russia. The French consultancy Agritel is not buying the talk of crop damage due to the hot, dry weather, increasing their Russian wheat production estimate to 81.7 million metric tonne (MMT). This is up 2.5MMT from their last estimate and is 13 per cent higher than last year’s production.
Yields are reported to be higher than last year, but lower than the records set in the 2017/18 season. The hot dry finish is likely to push protein levels higher making Russian wheat exports more attractive to global millers.
The European Commission has been forced to cut their European Union wheat production forecast for the 2019/20 season to 142.3MMT. This is down 1.5MMT from last month’s estimate of 143.8MMT, but still more than 10 per cent higher than last season’s drought-affected production of 128.8MMT.
France is the biggest wheat producer in the European Union, and their soft wheat crop is rated 80 per cent good to excellent, unchanged from last week despite the heat wave, and up 6 per cent from this time last year.
In South America, the Buenos Aires Grain Exchange is expecting 6.6 million hectares of wheat to be planted in Argentina, up from their last forecast of 6.4 million hectares. This, of course, will add tonnage to their exportable surplus and increase competition in key Asian markets for Australian exporters.
Here in Australia, it is another season of two opposing stories. Fortunately, the good story accounts for a much higher proportion of the continent’s cropping area than last year, but the drought is still seriously affecting production in substantial parts of eastern Australia.
In most quarters of southern New South Wales, Victoria, South Australia and Western Australia the winter crops are progressing well. Soil moisture levels in most districts are close to average for this time of the year.
However, farmers through central and northern New South Wales and southern Queensland are doing it tough. In some districts, year to date rainfall is the lowest ever, and many have not had a crop since 2016.
The planting window is closing fast. Nonetheless, if sufficient rain came in the next few weeks, many growers would still plant as much as they could. There would most likely be a swing to chickpeas at the expense of cereals, but they need the income, and the only way to get that income is to plant a crop.
But there is one big problem! There is no forecast for substantial rain in the foreseeable future.
Call your local Grain Brokers Australia representative on 1300 946 544 to discuss your grain marketing needs.

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June 25, 2019

Sea surface temperatures are moving in the right direction…

The earth’s climate is primarily driven by energy from the sun. Most of the sun’s energy is reflected back into space, but some is trapped by gases in the atmosphere and retained by the sea, air and land.

Astronomical variations and atmospheric shielding lead to the incoming solar radiation falling unevenly on the surface of the earth. Winds and ocean currents further redistribute the heat and moisture around the globe, creating climate zones.

Local oceanic, atmospheric, and temperature phenomena within these climate zones generate the weather that we experience on a localised basis across the globe. Here in Australia, two of the key drivers of local weather and climate variability are the Indian Ocean Dipole (IOD) and the El Niño Southern Oscillation (ENSO).

The IOD, also known as the Indian Niño, is an irregular oscillation of sea-surface temperatures in which the tropical eastern Indian Ocean becomes alternately warmer and then colder than the western part of the ocean. The IOD measures the difference between the seas surface temperatures in the two ocean regions and oscillates between, ‘positive’, ‘neutral’ and ‘negative’.

In the negative IOD phase, the sea surface temperatures are warmer than average around Indonesia and off the north-west coast of Western Australia and cooler than average in the western Indian Ocean. This leads to stronger westerly winds across the Indian Ocean, higher convection near Australia, and generally results in enhanced rainfall across the Australian continent.

The positive phase sees colder than average sea surface temperatures in the eastern Indian ocean and the opposite in the western Indian Ocean.  There is an increase in the easterly winds across the Indian Ocean in association with this sea surface temperature pattern, while convection near Australia reduces. This tends to lead to dryer than average seasons or even drought situations in Australia.

While the IOD looks at water temperatures in the Indian Ocean, the ENSO looks at water temperatures in the Pacific Ocean.  ENSO is an irregularly periodic variation in sea surface temperatures and winds over the tropical eastern Pacific Ocean, and it influences the climate of much of the tropics and subtropics.

The cooling phase of ENSO is known as La Niña, and the warming phase is known as El Niño. The Southern Oscillation refers to the accompanying atmospheric component. The El Niño phase is usually accompanied by high air surface pressure in the tropical western Pacific and La Niña phase with low air surface pressure in the same region.

The two phases relate to another phenomenon called the Walker circulation. This is a model of the lower atmosphere airflow over the tropical regions of the Pacific Ocean. The Walker circulation arises from a pressure gradient caused by a warm and wet low-pressure area in the western Pacific around Indonesia, accompanied by a cool and dry high-pressure area over the eastern Pacific.

An exceptionally strong Walker circulation causes a La Niña, resulting in cooler ocean temperatures in the eastern Pacific due to increased upwelling of the cold deep seawater. A reversal or weakening of the Walker circulation eliminates or decreases the upwelling, resulting in above average ocean temperatures off the coast of Peru, Ecuador and Columbia.

So, what are the sea surface temperatures doing at the moment?

The Pacific Ocean is currently near El Niño thresholds, and the IOD is in positive territory – both suggesting dryer than average conditions for the balance of winter and into the critical spring period.

The Bureau of Meteorology (BOM) is calling the current ENSO status as El Niño watch. However, the BOM is forecasting it to shift to a more neutral outlook in coming months. The IOD is currently sitting in positive territory, and according to the BOM, this is likely to persist and dominate the weather patterns across the Australian continent into the spring.

Nevertheless, looking at the change in equatorial sea surface temperatures in June, the trend is encouraging. Cooling is evident in the eastern Pacific, and western Indian Oceans and the required warming is evident to the north of Australia in the western Pacific and eastern Indian Oceans. The graphic above reveals the change over the week to June 23.

The burning question here is, will the trend continue, and will it persist long enough to change the spring rainfall outlook? Two or three weeks of encouraging data does not represent a sustained trend in the meteorological world. The trend needs to persist for at least a couple of months before a wide-scale change in local weather patterns is likely.

Despite recent precipitation events, year to date rainfall registrations across almost all of Australia’s cropping regions are still below average. In some parts of New South Wales and Queensland, the rain gauge has rarely been bothered in the last 18 months, and they are still in the grip of the drought that plagued east coast grain production in 2018.

The crop may be in the ground through southern New South Wales, Victoria, South Australia and Western Australia but many areas will require above average winter and spring rainfall just to achieve average yields.

Continued warming off the western Australian coast and cooling in the eastern Pacific Ocean are critical ingredients for a long term change to more normal, or even wetter than normal, precipitation events in Australia for the balance of 2019.

Let’s hope that recent changes become a long term trend that manifests itself in a spring conducive to above average winter crop yields and enough early spring rain in the summer cropping regions to get a widescale sorghum plant.

Call your local Grain Brokers Australia representative on 1300 946 544 to discuss your grain marketing needs.

Here Comes the Rain

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10 June. 2019

Dancing in the Rain

 Western Australian farmers are out dancing in rubber boots following the delayed Autumn break. Between 20 to 50 millimetres fell across most farms over the weekend.

The South West of the state traditionally sees the rain break mid-May and there were plenty of growers dry seeding up until the end of the first week in June. The rest had pulled up until further notice. This week is a different story.

So, what does it mean for Harvest 2019? Short term, it’s one big sigh of relief across the region. And provided the potential frosts stay away, the state is on track for another strong harvest.

This regional joy has extended only in patches to other Australian growing zones.

Queensland’s Central Highland growers also donned their dancing boots while Southern Queensland needs significantly more rain for an improved harvest.

And the threat of frost looms large for many growers still recovering from extended drought conditions.

Parts of South Australia are having their driest start for 150 years. And growers from East Gippsland are seeking drought relief despite an early Autumn break.

Rabobank is forecasting a total planted area of 18.4 million tonnes across Australia. This is 13% less than the five-year average.

Rain and frost aside, Indonesia’s expanded Black Sea wheat imports  will keep the price pressure on Australian traders and growers during the months ahead.

Once the country’s largest wheat supplier, Australia is finding it hard to compete with the high protein, low price varieties of the Black Sea’s new crop.

This issue is accentuated as traders capitalise on the price inverse between old and new crops.

Meanwhile, West Aussie growers are now shipping malt barley to Victoria in addition to wheat and oats.

Geelong’s Riordan Grains is considering Western Australia as an export source market. And they have indicated they’ll likely be using existing infrastructure such as that belonging to CBH.

Recent shipments from Albany have been delivered to Victoria rather than the northern regions, via Brisbane and Newcastle.

Back on the international stage, United States growers are experiencing a similarly mixed bag of politics, pricing and weather concerns.

Corn growers are experiencing historic planting delays on what is the largest crop on the planet. These delays have also impacted soy and wheat pricing and the market awaits a USDA condition rating report; the first for 2019.

Increasingly, the Black Sea is setting the global standard with the Chicago Board of Trade playing catch-up in a year plagued by delayed and inadequate data from the USDA.

With all these variables at play, it’s heartening to know that some Australian growers have still got something to dance about.

Sarah Woolford

Corporate Broker

Grain Brokers Australia

Recent insolvencies highlight the benefits of credit insurance …

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16th April, 2019

Farmers in Australia operate in a highly variable environment, and agriculture is considered the most volatile sector in the Australian economy. In fact, the volatility of the agricultural industry is nearly double that of any other industry in the country. With variability and volatility comes risk.

Unfortunately, in life, there is rarely a reward without taking a degree of risk. In farming, risk is an essential part of generating income. Managing risk is about making business decisions that exchange some level of tolerable risk for some degree of acceptable return. Decisions can be made to decrease risk, but that can often result in lower revenues.

To effectively manage risk in their business, grain producers need to understand both the downside and the upside of taking certain risks. In other words, they need to appreciate the potential harm, or cost, of taking a risk and the opportunities that taking that risk can offer.

Weather is commonly regarded as the foremost risk faced by Australia grain farmers. However, the list is long and includes, but is not limited to, production risk, price risk, geographical risk, political risk and credit risk. Diversification in crop type, enterprise mix and property location are three common strategies used to manage income volatility due to production, price and geographical risks.

The need for management of credit risk has been highlighted in recent months with the failure of two grain trading companies on the east coast of Australia in the first quarter of 2019. In each case, market participants are owed many millions of dollars, and grain growers are amongst the creditors.

It is estimated that the grain production sector in Australia has lost more than $50 million in recent years due to the insolvencies of a range of traders across the country. While this is small compared to the gross value of grain production over the same period, it has had an enormous impact on many individual farm businesses who have been forced to write off large sums of money due to the defaults.

Unfortunately, the incidence of insolvencies in the grains industry tends to increase following droughts due to higher grain values and increased price volatility. They also have a habit of occurring in multiples as trading companies are exposed to each other in trade strings and there can be a domino effect when one becomes insolvent and unable to pay their debts.

When a company is declared insolvent, there will be secured and unsecured creditors. A secured creditor is someone who has a security interest such as a mortgage or a charge, over some, or all, of the company’s assets, to secure a debt owed by the company.

Unsecured creditors rank lower in priority than secured creditors as they have no ‘security’ over company assets. In most cases, growers exposed to insolvency will appear on the list of unsecured creditors. Unsecured creditors are at the bottom of the pecking order when it comes to distribution of funds in the liquidation process.

In many instances, growers increase their credit risk by chasing the extra dollar. It is quite understandable that sellers want to maximise their return, but sometimes that extra dollar is just not worth the risk of default. For example, payment default on a 40 metric tonne (MT) b-double of grain at $300 equates to $12,000.

Say the seller’s total grain production is 6,000MT, that equates to $2/MT across total farm production. And that is only one load of grain. Quite often the exposure is multiple loads as contracts are often for many hundreds of tonnes.

So how should grain growers manage credit risk? Selling grain to multiple counterparties will help to spread the risk. Selling grain to the ‘big end of town’ is also likely to reduce risk. However, the best way for growers to mitigate counterparty risk in the Australian grain industry is to take out credit insurance when selling grain.

Credit insurance basically protects growers against insolvency and non-payment by the buyer. It provides the seller with peace of mind with regards to counterparty risk.

In most instances, such credit insurance policies guarantee the seller 90 per cent of the value of the grain being sold. That is an enormous reduction in financial risk exposure for a grain producer, especially when margins are continually being squeezed by increasing costs.

If we continue with the example above, the credit exposure on the b-double load of grain falls to just $1,200, or $0.20/MT across total farm production if credit insurance is in place. An extremely small price to pay for the certainty of receiving payment for 90 per cent of the value of the sale.

The most convenient and cost effective way for growers to access credit insurance is via their grain broker. For growers that don’t use a grain broker, or use one that doesn’t offer the insurance option, then now is the time to seek out a grain broker that does offer the credit insurance option.

In time, such insurance could well become a requirement of farm finance providers to manage their risk and exposure to the Australian agricultural sector. It could even have a cost of money benefit for the borrower.

Call your local Grain Brokers Australia representative on 1300 946 544 to discuss your grain marketing needs

Saudi appears for one last hurrah – updated

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Saudi appears for one last hurrah…
After an absence from the market of more than four months, Saudi Arabia’s state grain buyer (SAGO) finally announced a tender to purchase 720,000 metric tonnes (MT) of feed barley for arrival in May and June 2019. There are seeking offers for delivery of 12 panamax cargoes (60,000 MT) over the two month period.
Saudi Arabia is the world’s largest importer of barley, and they have been absent from the market since early November 2018. The reduced global demand has depressed feed barley prices as global trading houses sought alternative homes for exportable surpluses sitting in the European Union (EU), the Black Sea region, Australia and Argentina.
No doubt this market correction was part of the SAGO strategy as Saudi Arabian consumers utilised above average winter pastures and tapped into state reserves to satisfy domestic demand in the interim.
There has also been a shift in the demand profile for feed barley in Saudi Arabia with purchases of finished feed increasing at the expense of feed barley. These rations provide a more nutritional and balanced diet for the Bedouin livestock. This trend also accounts for the increase in corn imports into the kingdom in recent years.
This will most likely be SAGO’s final feed barley tender of the 2018/19 marketing year which concludes at the end of June. This means it will be the last opportunity for exporters to move substantial quantities of barley before new crop Black Sea exports start rolling in late June or early July.
In the end, SAGO booked 730,000MT for May and June arrival at an average price of US$211.86/MT cost and freight (C&F). The origins offered were Argentina, Australia, the United States (US), the EU and the Black Sea region with the successful seller having the option to choose the origin of the barley that they ultimately deliver.
The final tender price was almost US$55 less than what SAGO paid in their last tender. Argentinian export values have been quoted as low as US$185 free on board (FOB) in the last week and that looks like the most likely origin, particularly for the May and early June deliveries. Both the EU and Australia would be too expensive based on recent FOB values.
The SAGO feed barley tenders have a generous delivery grace period. Basically, successful sellers have the option of taking an arrival date penalty of 1 per cent of the price for each week their vessel is delayed. The cumulative maximum penalty is 6 per cent which effectively means the maximum allowable delay under the contract terms is 6 weeks.
The Black Sea crop has been maturing without any issues and warmer than average weather in early March has favoured early maturity of winter crops. With new crop Black Sea quoted at around US$185 FOB, and the freight advantage over Argentina, barley from that region appears to be well in contention for the June arrivals as delivery could be as late as first half July and still be within contract terms.
The big news out of the US last week was the record flooding in the western Corn Belt, including Iowa and Nebraska which are two of the top three corn producers. This early flooding was caused by rapid snowmelt combined with heavy spring rain and late season snowfall in areas where soil moisture is high.
Some major rivers, particularly the Missouri River, have smashed previous flood records by as much as four feet. What’s more, many of the nation’s well-engineered levees have failed to contain the unprecedented floodwaters. In some areas, ice jams in the river system are exacerbating the flooding.
The flooding is causing all sorts of issues with logistics and grain handling infrastructure throughout the Midwest. Many roads and rail lines have been washed out in Iowa, Nebraska and several neighbouring states. The catastrophe has also destroyed grain being held in storage around the region. Some Midwest growers have been hoping to ride out the US-China trade war by holding their corn and soybeans on-farm in silo bags and on pads, and a significant proportion of those stocks have reportedly been destroyed.
The flooding is fuelling market concerns about late planting and reduced acreage, and there doesn’t appear to be any respite from the rain in the near future. The US National Oceanic and Atmospheric Administration have forecast the flooding to persist in the region through to the end of May.
Should this come to fruition it would leave little time to plant a corn crop within the ideal seeding window. In many regions, it is already being compared to the 2013 and 2015 season when 3.6 million acres and 2.4 million acres respectively were enrolled in the very generous prevent planting program.
Prevent plant crop insurance is purchased by US farmers, and subsidised by the federal government, to protect the potential income from acreage that cannot be planted because of flood, drought, or other natural disasters. On average, the federal government subsidises 62 per cent of the farmer premium.
Prevented planting is a failure to plant an insured crop with the proper equipment by the final planting date designated in the insurance policy, or during the late planting period, if applicable. Final planting dates and late planting periods vary by crop and by area. They are set each season by the Risk Management Agency which is part of the United States Department of Agriculture (USDA).
It is still early days, and modern machinery and planting technology enable grain growers to plant their crop quickly and efficiently when small windows present. Whilst the situation certainly requires scrutiny, it is far too early to write down the corn crop, or write up soybean plantings, at this stage of the season.
Corn plantings in the US are forecast at 92 million acres according to the latest USDA estimate. This is a year-on-year increase of 2.9 million acres but still 5.3 million acres lower than the record of 97.3 million acres set in 2012. The USDA has forecast 2019/20 corn ending stocks at 1.75 billion bushels (44.5MMT) and a stocks-to-use ratio of 11.7 per cent.
The ending stocks number is predicated on a resolution to Don’s Party (the US-China trade war) and a significant lift in corn sales in the last quarter of the marketing year. That said, if ending stocks do get down to that number it would mean the tightest US corn balance sheet since the 2013/14 season.
You can always count on a good weather event somewhere at this time of the year to keep the market on its toes!

Call your local Grain Brokers Australia representative on 1300 946 544 to discuss your grain marketing needs.

Strap in for the Annual Volatility Rollercoaster

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Strap in for the annual volatility rollercoaster…
After an extremely dry summer, grain growers in Queensland and parts of northern New South Wales, received some very welcome rainfall over the weekend. This was the first significant rain event for 2019 and hopefully signals a change to the abnormally dry weather pattern experienced over the summer.
Many of the regions summer crops have already been harvested or are so close to harvest that the rain will not provide any meaningful benefit. However, there are significant areas of sorghum and cotton that were sown after storms just prior to Christmas and those crops will undoubtedly be feeling much happier after receiving their first drink since being planted.
March temperatures have been well above average across most of the summer cropping region, and the late crops were certainly feeling the pinch. Many growers were looking at spraying out their crops because yield prospects were poor, and they were looking to conserve what moisture was still there for a possible winter crop program.
Whilst the falls were nowhere near enough to guarantee a plant, they will definitely provide a massive boost to winter crop prospects in the districts fortunate enough to be under the storms. No doubt there will be some early crops planted, but the main planting window is still at least 4 weeks away, and much more rain will be required to ensure all of the intended winter crop area is sown into moisture.
Despite the top up in Queensland and northern New South Wales over the weekend, soil moisture levels across almost all of Australia’s grain growing districts remain below average, or well below average for this time of the year. There are many districts where soil moisture levels are at or close to the lowest on record.
This will make it extremely difficult to achieve anything more than average production in Australia this season unless there is a significant move to a wetter than average bias for the remainder of the year.
The latest climate outlook from the Bureau of Meteorology suggests that the tropical Pacific is likely to warm to El Niño levels during the Australian autumn. The key here will be if that pattern continues into the winter as its drying influence, particularly over eastern Australia, is stronger in winter than in autumn.
Prospects are obviously much better on the other side of the Pacific where wheat plantings in Argentina are forecast to rise for the fourth consecutive season. Forecasters are suggesting that the area planted to wheat could reach 6.9 million hectares this season, a rise of almost 10 per cent from the 6.3 million hectares sown in the 2018/19 season.
Argentina produced a record 19.5 million metric tonnes (MMT) of wheat last season and have been a significant exporter into some of Australia’s traditional Asian customers in the last six months. However, Australian exporters have been finding some Asian love in recent weeks with a number of sales reported, including to traditional destinations such as the Philippines, Indonesia and South Korea.
United States (US) wheat export sales continue to disappoint the market and time is quickly running out to make sizeable sales before new crop Black Sea stocks will be available at a significant discount to old crop. Much of the hope and expectation has been around China and their requirements once an agreement is signed to end the trade war. Alas, no deal has been signed as yet.
On the other hand, French wheat exports have picked up significantly in the last month. French farming agency FranceAgriMer has increased forecast for French soft wheat exports outside the European Union in the current marketing year from 8.85MMT to 9.5mmt. It said that there was also the potential for more upgrades as competitively priced French wheat draws late-season demand from importers.
The huge South American summer crop harvest continues without too much interruption. The official Brazilian agency Conab has reduced their summer corn crop forecast slightly to 26.2MMT, but the Safrinha (second) corn crop has been increased to 66.6MMT. That makes the total corn crop 92.8MMT, up from 91.6MMT last month and up 15 per cent on the 80.7MMT produced last year.
Conab’s soybean production estimate has been reduced to 113.5MMT, down from 115.3MMT in February. Last year’s soybean crop was 119.3MMT, so year-on-year production is now down 5.8MMT, or almost 5 per cent. The Brazilians will have to wait another year to steal the mantle as the largest global producer of soybeans from the US
In Argentina, the Rosario Grain Exchange is calling the Argentine corn crop 47.3MMT. This is an increase of 800,000 tonnes compared to their last estimate. The big mover was soybeans where the Rosario Grain Exchange called the crop 54MMT, up a whopping 2MMT from their previous estimate in February.
The South American summer crop is the final piece of the 2018/19 crop year puzzle. While final production is not locked in just yet, global markets are becoming increasingly comfortable with the levels of production and the harvest prospects.
The focus is now turning to the 2019/20 crop. The northern hemisphere winter crop is the first cab off the rank, and it is entering a very critical phase of development. It is now spring and depending on location the crop has emerged, or it is emerging from dormancy, and it is very susceptible to weather damage. Any sudden change in the weather pattern that exposes the crop to an extreme cold spell can damage or even kill off the plant.
The other big swinger at this time of the year is the summer crop planting intentions, particularly in the US. A little bit of cold and rainy weather and very quickly there will be talk that farmers won’t be able to plant corn, and there will be a swing to soybeans. The reality is the US farmer has consistently shown that they have no problem seeding corn in tight windows.
The new crop uncertainty is ultimately reflected in global futures markets. As a result, they tend to be quite volatile at this time of the year. Last week was a classic example with the recent downtrend in wheat broken with a couple of big rallies. That volatility will most likely continue as there is a lot of northern hemisphere weather risk in the coming months. This could provide some juicy new crop pricing opportunities here in Australia once the rain arrives and production certainty increases.
Call your local Grain Brokers Australia representative on 1300 946 544 to discuss your grain marketing needs.

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.

Over the thirsty paddocks…

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Grain Brokers Australia Weekly Market Report
5th March, 2019
Over the thirsty paddocks…

On Thursday of last week, the Bureau of Meteorology (BOM) provided an insight into the weather experienced across the country in the previous three months and released their latest three-month outlook. It has certainly been a summer of extremes with heatwaves, dust storms and bushfires experienced across much of the continent, particularly the eastern states, and then, for parts of northwestern Queensland, unprecedented floods in February.
The temperature summary for the December to February period revealed that Australia endured its hottest ever summer, breaking the previous record set in 2012/13. The mean summer temperature was at least 2ºC above the 27.5ºC benchmark that the BOM considers normal, based on the 30 years from 1961 to 1990.
Early last month the BOM confirmed that January was the hottest month ever recorded in Australia. The mean temperature across the country of 30.8ºC was 2.9ºC above the 1961 to 1990 average. Maximum and minimum temperature records were broken across the country, and the Queensland town of Cloncurry endured 43 days in a row in excess of 40ºC.
In terms of rainfall, a massive part of southern and central Queensland and northern New South Wales experienced their lowest registrations on record. Those districts that didn’t post a record were very much below average. The shrinking Australia sorghum crop is undoubtedly a reflection of these statistics.
Whilst the rest of the Australian winter crop belt traditionally has a winter dominant rainfall pattern, some summer rainfall is quite normal. That has not been the case for the South Australia grain grower this summer where the entire state, save for a small pocket in the lower south-east, recorded below average or very much below average rainfall. The story in Western Australia was much the same.
The hot, dry trend is set to continue for much of the continent according to the BOM’s latest three-month outlook. All districts east of a line from Darwin to Port Lincoln on South Australia’s Eyre Peninsula are expected to have a drier than average autumn (March to May). The Western Australian grain belt is likely to receive average rainfall for the same period.
The BOM suggests that warmer than average autumn days and nights are very likely for almost all of the Australian landmass. They also predict that there is more than an 80 per cent chance of being warmer than the median for both days and nights for most of the country.
Time is running out fast for the winter cropping regions of Queensland and northern New South Wales. These regions have a summer dominant rainfall pattern, and grain growers in these regions rely on the summer wet season to replenish the soil moisture profile ahead of the traditional winter drought. This moisture is critical for the winter crop ahead.
Most districts have now had three consecutive summers where rainfall registrations have been significantly below average. Rainfall, in the two winters sandwiched in between those summers, has also been well below average.
The amount of rain required to fill the soil profile varies depending on the success, or otherwise, of last season’s cropping program. A considerable part of the region in question failed to plant a crop last winter. Some of these areas may only require 100mm of rainfall to join up with the moisture which may be as close as 30 centimetres from the soil surface.
Those who planted a crop, and it managed to struggle into the spring, and even to harvest, will require much more rain as the subsoil moisture level will be much lower down the profile, and therefore more precipitation will be required to join up with the existing deep soil moisture.
The required summer rains could still come, albeit a little late. It has happened many times in the past. Nonetheless, the further we go into autumn the lower the chance. The soils are parched, and there is little or no ground cover, so the first rains need to be slow and steady. However, with unseasonable and extreme weather events now the norm, the biggest fear is that the long dry spell will finish with a big wet.
It is far too early to make a call on the impact of the dry summer on New South Wales and Queensland winter crop production forecasts. Australian farmers are a resilient bunch, none more so than the north western New South Wales grower, many of whom have only had one crop in the last five years. If sufficient rain arrives, the crop will be planted.
Meanwhile, domestic wheat and barley values continued the recent downward trend last week. This appears to have been led by falling United States futures values and trade longs here in Australia desperately looking for export homes. New crop Black Sea harvest is fast approaching.
Open demand ahead of their harvest is diminishing, and the market inverse will make it extremely difficult for Australia to compete in the third quarter of the year without a lot of financial pain. Asian millers have reportedly turned to Argentina for wheat, and there still hasn’t been a Saudi Arabian feed barley tender since November last year.
Western Australian ASW wheat bids fell around $15 across the week, and the northern feed market mirrored that move, down $15 and trading at just under a spread of $100. Feed barley bids in the west fell by about $11 week-on-week. The delivered Darling Downs price closed the week down $15 and is trading at a spread of $106 over the west.
On the other hand, delivered Darling Downs sorghum values were relatively unchanged. The discount to feed barley is now into $20, and the wheat spread closed the week at $50. Again, the diminishing spreads are a reflection of lower sorghum production as a result of the parched summer. However, the resultant increase in demand for Western Australian grain will only absorb a small portion of the long positions currently sitting in the hands of the domestic trade.
Call Grain Brokers Australia on 1300 946 544 to discuss your grain marketing needs.

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