Crop Archives | Grain Brokers Australia

Australian winter crop teetering as it enters spring…

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The annual Pro Farmer Crop Tour was conducted across seven of the most important corn and soybean states in the US last week. The results were released after the markets closed on Friday and, as most market pundits expected, came in lower than the recent USDA production estimates.

This year’s tour had more than 125 scouts representing 12 countries and included farmers, agribusiness experts, media, government and representatives of the financial industry. The scouts sampled around 3000 individual fields along 20 pre-determined routes across Illinois, Indiana, Iowa, Minnesota, Nebraska, Ohio and South Dakota.

Pro Farmer estimates the average US corn yield at 163.3 bushels per acre (bu/ac) or 10.25 metric tonne per hectare (MT/ha). This was 6.2 bu/ac (0.39 MT/ha), or 3.7 per cent lower than the most recent USDA forecast of 169.5 bu/ac (10.64 MH/ha). Total US corn production came in at 13.358 billion bushels, or 339.3 million metric tonne (MMT).
The soybean production estimate came in at 3.497 billion bushels or 95.2MMT. This was based on an average national yield of 46.1 bu/ac (2.89 MT/ha), 4.9 per cent, or 2.4 bu/ac (0.15 MT/ha) lower than the latest USDA mark of 48.5 bu/ac (3.04 MT/ha).

One key observation from the tour was the maturity of the corn crop. Many scouts put it up to three weeks behind the average for this time of the year in the regions worst affected by the delayed sowing. The eastern reaches of the corn belt were the worst affected, but the crop certainly improved in quality and maturity as the tour moved west.
The forecast for cooler weather in coming weeks will slow the maturity of the crop even more. With autumn fast approaching, the days are getting shorter, and the average daily temperatures are on the decline. This raises the concern of early frosts and the potential impact on final yields.

Here in Australia, spring is almost upon us. As the days get longer and average day temperatures increase the evapotranspiration rate of each plant rises significantly, increasing moisture demand of the maturing crop. The possibility of frost also becomes a significant production risk as the crop moves into its reproductive phase.

Rainfall last week has continued the hand-to-mouth pattern evident across most of Victoria, South Australia and Western Australia this season. The falls were generally less than 10mm with most of the more marginal cropping regions receiving less than 5mm. New South Wales didn’t fare as well with some minor falls limited to districts south of the Murrumbidgee River. Central New South Wales, northern New South Wales and all of the Queensland cropping areas received absolutely nothing.

Victoria is the pick of the states at the moment, with forecasts suggesting average to slightly above average production. All but the north-west corner has received at least 25mm of rainfall so far this month. That said, the picture is not uniform across the entire state. There are parts of the Western Districts that are too wet and conversely a significant portion of the Mallee is starting to struggle due to lack of in-crop rainfall.

In South Australia, it is also a tale of two stories. The South East, lower Mid-North, lower Yorke Peninsula and the lower Eyre Peninsula are all tracking along quite nicely, but the more northern production areas have only been catching the edge of each change and have been struggling for almost the entire season.
Primary Industries and Regions South Australia (PIRSA) released their latest crop estimates last week with the wheat crop currently estimated at 4.8MMT and barley at 2.2MMT. This would appear to be extremely optimistic based on the current state of the crop.

In Western Australia, most grain growers are in the game but, overall, the crop is running around three weeks behind average. The crop went in on time, but most of it was dry sown. The break didn’t come until late in the first week of June, so germination was delayed accordingly. Canola appears to have lost the most potential with poor germination in many paddocks and flowering running very late, especially in the Kwinana and Geraldton zones.

Southern New South Wales is starting to feel the pinch. Most of the crop south of a horizontal line through West Wyalong was planted, but rainfall registrations in most regions have been well below average through July and August. The crops in many areas are showing signs of stress and production potential is falling quickly.
Save for a few isolated areas, crop prospects in New South Wales north of that line are a disaster. Much of central and northern New South Wales have had less rainfall year-to-date than at the same time in 2018. Southern Queensland is no better. Less than 30 per cent of the crop was planted, and less than half of that still has some prospect of harvesting more than next years seed requirements, assuming adequate spring rainfall is forthcoming.

The big outlier across the entire country this year is the size of the area that will be cut for hay. In Western Australia, livestock producers have been forced to feed for a much longer period this year as the break came late and ensuing pasture growth was slow. Reserves have been depleted as a result and growers will be looking to restock.

The situation in the eastern states is far more dire. It was dry across all eastern states last year, and hay stocks were not replenished last spring. Back-to-back droughts in central and northern New South Wales and southern Queensland has sustained hay prices at extremely high levels for an unprecedented length of time.

For those doing the calculations, the high prices are certainly providing a significant incentive in many regions to minimise production risk by cutting their crops for hay rather than carrying through to harvest. This is especially the case where the crops are already under moisture stress and potential grain production is decreasing.

The entire Australian winter crop area is currently behind the eight ball in terms of year-to-date rainfall. While the drought area on the east coast is currently less than what it was last year, much lower production prospects in Western Australia and high demand for hay across the entire country means that above-average rainfall and a kind spring will be required to ensure that this season’s domestic winter crop production exceeds that of 2018/19.

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

USDA corn numbers don’t lie! Or do they?

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The global grain markets were rocked last week when the United States Department of Agriculture (USDA) amended this season’s US corn production estimates, printing yield and area numbers much higher than the trade had expected.

The latest monthly World Agricultural Supply and Demand Estimates (WASDE) report was released on Monday of last week (Tuesday morning Aussie time) and it was generally expected to have a few surprises. Yet, an increase in corn production was the complete antithesis to industry wide projections.

The USDA decreased the corn area by a meagre 690,000 hectares to 36.42 million hectares. This area was far higher than the average trade estimate of 35.5 million hectares. The higher than expected area was a big surprise, but not as big as the increase in yield from 10.42 metric tonne per hectare (MT/ha) to 10.64MT/ha.

It is widely accepted that the corn crop was planted under less than optimal conditions, and it has not been a walk in the park for the developing crop since planting. If that is the case, it is difficult to swallow a projected yield that is only 4.5 per cent below the long-term average.

The net effect of the USDA changes was an increase in total corn production from 352.4 million metric tonne (MMT) to 353.1MMT when the average trade estimate had total production decreasing to 335.1MMT. Consequently, many don’t believe the USDA numbers and are expecting gradual downward revisions in coming months.
Maybe the Market Facilitation Program, designed to assist farmers affected by tariffs and reduced exports, provided a bigger than necessary incentive for farmers to plant regardless of the chances of crop success. But the prevent plant numbers (also released early last week) do not support that notion.

US farmers reported they were not able to plant crops on more than 7.9 million hectares this year. This is the highest prevent plant area reported since the Farm Service Agency (FSA) began releasing their report in 2007. It is also 7.08 million hectares more than was reported at the same time last year.

There is a saying that says numbers don’t lie, but these don’t seem to make sense. Corn made up more than 58 per cent of the prevent plant area or 4.53 million hectares. If you add that to the latest WASDE seeded area, it comes to a total of 40.95 million hectares.

This is 9 per cent higher than the 37.55 million hectares the USDA expected farmers to allocate to corn production in their May update, before the seeding program commenced. It is also be more than 5 million hectares above the previous record corn area.

US corn futures took a shellacking as soon as the WASDE report was released. The nearby contract was very quickly limit down (25 cents per bushel) and, despite a small rally on Friday, was down 8.8 per cent across the week. That represents the biggest weekly fall since June 2016.

The market has essentially fallen back to early May values, but production has fallen 29MMT and ending stocks are down by almost 8MMT over the same period.
The speculators in the corn market have had a rough time. They had a significant short position at the beginning of May. They lost money when the market rallied as planting conditions rapidly deteriorated. They spun around and went long only to get stopped out last week back near contract lows.

Where to from here? The market has lost around 100 US cents per bushel in the last eight weeks. Maybe it has done enough for now? With substantial scepticism around the high USDA numbers, the final disposition of the corn crop and the weather from here through to harvest, it would seem logical that a modest risk premium would be justified.
Wheat took a back seat to corn in the aftermath of last week’s WASDE report, but there were some significant revisions to global production. The production declines were led by Turkey, where a lower harvested area and poor yields led to a 2MMT reduction in output.

The USDA trimmed production in the European Union by only 1.3MMT to 150MMT, with the dry, sweltering June conditions having a much smaller impact than had initially been anticipated.
In the Black Sea region, Russian production was lowered by 1.2MMT to 73MMT, a far cry from the 80MMT being spruiked just a few months ago. The Kazakhstan wheat crop was reduced by 1MMT to 13MMT, but Ukraine bucked the regional trend with a 0.2MMT increase in production.

The picture in the Americas was positive, with US production increased by 1.6MMT to 53.9MT. Down in Argentina, the season continues to improve with another upward revision of 0.5MMT to 20.5MMT. Nevertheless, this is lower than the most recent Buenos Aires Grain Exchange estimate of 21.5MMT.

Australian production was left unchanged at 21MMT. Rainfall across much of the Western Australian, South Australian and Victorian production areas in the first half of August is keeping the crop ticking along, but we still need more rain and a kind spring to avoid a downward revision to production before harvest.

The overall impact of the revisions to global wheat production was a decrease of 3.4MMT from 771.5MMT to 768.1MMT. The key point here is that despite the decline, global production is still up by 37.5MMT year-on-year, carry-out is healthy at 285.4MMT, and the stocks-to-use ratio of 37.6 per cent is running at a historically high level.
Call your local Grain Brokers Australia representative on 1300 946 544 to discuss your grain marketing needs.

The small Australia crop is quickly getting smaller…

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Last year’s Australian winter crop production was the lowest in more than a decade after drought in the eastern states cut production to well under that required for domestic demand.

However, prospects for the 2019/20 season in Australia are now worse as the unseasonably dry August and September extends into October, sapping the early season yield potential and bringing crops to harvest much earlier than usual in many regions.
According to the latest Bureau of Meteorology climate update, rainfall is likely to be below average across most of the country for the remainder of 2019, with high chances of a drier than average October and November in particular.

They predict that daytime temperatures are very likely to be above average across Australia for the remainder of the year with a spell of hot weather likely in early October. These are precisely the conditions experienced in many districts over much of the last week, and this will hasten the ripening process in many regions.
The BOM expects that night-time temperatures will generally be warmer than normal and that a positive Indian Ocean Dipole (IOD) is highly likely to remain the dominant climate driver until at least the end of spring.

This gloomy outlook does not bode well for some late yield relief, and further reductions in production estimates are highly likely as the remaining crop moves swiftly toward harvest. Soil moisture levels have been below average across most of Australia’s farming area for most of the year, and the crop in many regions has simply run out of gas.
This fate has been borne out in the area that has already been dropped for hay, across all states. And the warm weather over the last week will no doubt force growers to a make further assessment of the yield prospects on crops still standing and weigh that up against potential returns being offered by an extremely buoyant hay market.
Production estimates are always a moving target, and this is no more apparent than in the current season. There is a wide variation in production estimates being tossed up by the trade and market analysts, but one thing is undoubtedly common for them all, it will be less tomorrow.

In late September I was thinking national wheat and barley production were around 16.50 million metric tonne (MMT) and 8MMT respectively. One week into October and I struggle to get the wheat crop above 15.75 MMT and the barley crop above 7.75MMT, such is the decline in the very short period of time. Falling production in both South Australia and Western Australia over the past few weeks have been the biggest contributors to that decrease.

So how will this affect trade flow over the next twelve months? Like last season, the market will be driven by the requirements of the domestic consumer. As national production decreases the exportable surplus will decrease, and any need to be competitive into Asia for anything but inelastic Australian demand will diminish accordingly.
In the 2018/19 season demand for grain in Queensland, New South Wales and Victoria far outstripped supply. This resulted in around 3.4MMT of grain, primarily wheat and barley, being shipped around the coast from ports in South Australia and Western Australia to eastern state ports. This was supplemented by around 300,000 metric tonne of rail movements and at as much as 500,000 metric tonne of road movements to east coast consumers.

In addition, the east coast supply deficit paved the way for the approval of milling wheat imports from Canada. The grain was shipped into Port Kembla and then taken by train to Manildra’s Shoalhaven starches facility at Nowra, a distance of around 70 kilometres.

While national production will be down year-on-year, the production landscape has changed. Total wheat and barley production in Western Australia will be down by as much as 5MMT and production of the same grains in the eastern states (including South Australia) will be up by around 3.0MMT, based on the aforementioned production estimates.
Demand tributary to the ports of Brisbane and Newcastle will be heavily reliant on coastal movements from Western Australia and South Australia, supplemented by rail and road movements from Victoria and South Australia. Manildra will continue to buy locally and has already booked more shipments out of Canada to meet their quality requirements.
How the trade reacts at harvest will be the most interesting market dynamic. With drought on the east coast last year many bought up big at harvest believing ownership would be king, only to see cash prices and basis drop dramatically in early 2019.

One would expect their approach to be a little more measured this harvest, especially with Western Australian values currently well above export parity and the delivered Queensland markets priced at, or close to, full execution from the west.

For the eastern state grower, it will be all about capturing the domestic premiums without taking on an undue amount of counterparty risk. This means that the highest price may not always be the best price. Many Victorian, New South Wales and Queensland producers will have existing end-user relationships and cash flow will be generated by selling into the domestic market direct off the header and then filling on-farm storages.

South Australia will be a little different. Pricing for the Eyre Peninsula and the Yorke Peninsula growers will be focussed on coastal movements through the ports to New South Wales and Queensland. The Adelaide zone grower may find an incentive to truck their production east. Better prices may be found at silos in Victoria or even New South Wales than at the local silo, especially at harvest time.

It may seem a long way to go, but from the right locations, the higher price should more than make up for the additional freight cost. If the grower doesn’t move the grain east, the trade will, so it is definitely worth doing the analysis and banking the spread if it is available. Better still, let your trusty grain broker point you in the right direction.
Agricultural production globally is at the whim of the weather. The one thing we do know is that drought-breaking rains in Australia are a day closer. In the meantime, the relatively small Australian crop is quickly getting smaller.

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

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