Weekly Commentary Archives | Page 2 of 9

Dec 03 2019

Weather outlook great for harvest but not for summer crop prospects…

Posted by GBA Administrator | Grain Brokers Australia News, Weekly Commentary | No Comments

A couple of big weeks in the header has pushed the Australian winter crop harvest well past the half-way mark as we enter the month of December. However, total production, particularly wheat, continues to decline as yields disappoint. A national wheat crop of under 14.5 million metric tonne (MMT) is looking highly probable.

In Western Australia, total receivals will be lucky to top 10MMT, a fall of almost 40 per cent on the 16.2MMT received last season. Canola receivals will certainly edge past the 1MMT mark but will struggle to go much higher as the harvest has finished in most regions.

The barley harvest is also winding down across the state, even in the southern reaches of the state. Yields have not lived up to expectations, and total production of less than 3.2MMT is expected. The malting barley selection rate has also been quite poor. While it has improved as the harvest has progressed south, at around 23 per cent (including Malt2), it sits well below the long term average.

The Western Australian wheat harvest has been an even bigger disappointment with yields coming in well below expectations, and total production could easily be less than 5.5MMT. While it shouldn’t be surprising considering the hard finish, protein levels have been well above that of recent years with only 10 per cent of deliveries going into the ASW bin, down from 46 per cent last season.

This has led to a rally at the low-quality end of the market as exporters scramble to buy wheat to blend away on feed shipments into Asia. The grade spreads narrowed across the week. Kwinana H2 was up around $5 week-on-week to finish Friday at around $339 Free in Store (FIS). APW1 rallied $8 to close the week at $338 FIS, APW2 was up $11 to $335 FIS but the biggest rise for the week belonged to ASW, up $13 to $334 FIS, only $5 under H2.

The story on the eastern side of the Nullarbor is not much different. While production of wheat, barley and canola in South Australia will each edge higher than last year’s drought-ravaged numbers, the difference will only be minimal.
At this stage, it looks like wheat production will exceed 3MMT, but only just, unless the yields in the south are better than expected. Barley yields have surprised to the upside pushing production north of the 1.7MMT produced last season, and canola deliveries are projected to be around 320,000 by the time harvest has concluded.

High protein has also been a feature of the South Australian wheat harvest, but the spread between H2 and ASW has remained relatively constant at around $8-10 over the last couple of weeks.

Victoria has fared the best this season with a substantial turnaround in production compared to last year’s drought impaired yields. The hot, dry and extremely windy weather mid-way through November did take its toll, particularly in paddocks that were ready for harvest, but yields continue to hold up reasonably well.

Production of around 3.5MMT and 2.5MMT for wheat and barley respectively is on the cards. As harvest pressure has mounted in recent weeks, prices have dropped enough to entice domestic consumers and the trade to buy up, especially with Western Australia and South Australia now finding export demand for both wheat and barley.

Meanwhile, the Bureau of Meteorology (BOM) released its summer outlook last Friday and the news was not good for large tracts of the Australian continent. The outlook summary suggests that the December to February period will be drier than average for much of the nation, particularly across eastern states, and there is a high likelihood of warmer than average days and nights for a majority of the continent.

The dry signal is expected to contract to the east of the country as the summer progresses with much of the Western Australian coastline, particularly the Gascoyne, Pilbara and parts of the Kimberly regions, having a high chance of being wetter than average in January and February.

While the outlook for drier than average conditions may ease for some areas heading into 2020, several months of above-average rainfall would be required to see a recovery in soil moisture levels due to the sustained dry.

A positive Indian Ocean Dipole (IOD) continues to be the primary climate influence in Australia, although it has progressively weakened slightly from record levels throughout November. Under positive IOD conditions, the southern two-thirds of the continent typically experience below-average rainfall and warmer than average temperatures. This is broadly in line with the BOM’s summer outlook.

The IOD’s influence over Australian weather is historically lower in the summer and early autumn months. However, the strong IOD combined with the delayed migration of the monsoon into the southern hemisphere this year suggests that it will continue to be a major driver well into the summer period.

The Southern Annular Mode (SAM) is the other significant climate influence at the moment, and it remains in negative territory. SAM refers to the (non-seasonal) north-south movement of the strong winds that blow almost continuously in the mid to high latitudes of the southern hemisphere. This belt of westerly winds is also associated with storms and cold fronts that move from west to east, bringing rainfall to southern Australia.

A negative SAM typically means drier conditions for eastern Australia and wetter conditions for Tasmania as the winds have not migrated north over southern Australia leaving the rains falling south of the Australian landmass.

The last three months have not been kind to those looking for rain, and the 2019 spring was officially the driest in the BOM’s 120 years of rainfall records. Of course, now that we are into the winter crop harvest dry conditions are welcomed, and a summer drought is the norm in the southern third of the continent.

However, the soils across the Australian summer cropping regions are parched, and virtually no sorghum or cotton has been planted to date. According to satellite imagery, of the 1 million hectares of arable land in southern Queensland, less than 10,000 hectares have been sown to any crop (including fruit and vegetables). And the planting window is closing fast with the prospects of a wide-scale plant are quite remote.

The smaller the sorghum crop, the bigger the transhipment task from South Australia and Western Australia over the next twelve months and the lower the exportable surplus available to meet inelastic Asian demand.

Nov 28 2019

China’s pork plight intensifies

Posted by GBA Administrator | Grain Brokers Australia News, Weekly Commentary | No Comments

African Swine Fever (ASF) continues to decimate the domestic pig herd in China with hundreds of millions of animals now lost, either dying as a result of the devastating disease or killed in an attempt to contain the spread of the highly contagious virus.

According to the Chinese government, 40 per cent of the countries pig population has been lost since the outbreak was first discovered in August 2018. However, unofficial reports suggest that Beijing is being extremely conservative, and the world’s biggest swine herd is now more than 50 per cent lower than before the outbreak was announced. That equates to around 250 million pigs or almost 20 per cent of the global herd.

The double-stranded DNA virus causes a haemorrhagic fever with extremely high mortality rates in domestic pigs. In many instances, death can occur as quickly as one week after infection.

Infected pigs develop a high fever but show no other noticeable symptoms for the first few days. They then gradually lose their appetite and become depressed. In white-skinned pigs, the extremities such as ears, nose and abdomen turn blueish-purple. Eventually, they become unsteady on their legs, enter a comatose state and die.

The virus is amazingly resilient to a variety of curing methods and environmental conditions. There is currently no vaccine, it can endure extreme temperatures and can survive in frozen meat for several years.

The Chinese love their pork. It is a staple in their diet and accounts for more than 60 per cent of the country’s meat consumption. In 2017, the last full year before the outbreak of ASF, they consumed an average of 33 kilograms per capita. To put that in perspective, the average Australian consumed 28 kilograms, and in the US per capita consumption was 23 kilograms in the same year.

The significant decrease in the pig herd has led to an unprecedented shortage of pork in the world’s biggest pork market and has seen the ex-farm price increase by more than 125 per cent since July this year. Retail prices are said to have increased by almost 150 per cent in 2019. The soaring prices have been a significant contributing factor to rising inflation in China which hit an annualised rate of 3.8% in October.

In a bid to meet demand and arrest the surge in prices, the Chinese government has begun auctioning frozen pork from its state reserves. However, analysts indicate that deploying the pork reserves will not be enough to stabilise prices let alone reduce them, and they are expected to continue rising in the run-up to Chinese New Year in January.

One of the first ASF control measures implemented across the country last year was to close down small pig farms. In quite a controversial backflip, and despite the continued spread of the epidemic, Beijing is asking local government to reverse this policy in an attempt to arrest the production decline and shore up future supply.

The combination of strong demand, falling production, and spiralling prices have also put a rocket under Chinese imports. In September 2018, China imported 94,000 tonnes of pork. Twelve months later that number had increased by more than 71 per cent to 161,000 tonnes. And in October they were up to 177,500 tonnes. That pushed year-to-date imports past 1.5 million tonnes, an increase of 49.4 per cent on the previous corresponding period.

In addition to traditional suppliers such as Spain and Germany, China has been scrambling to approve new import origins such as Brazil, Argentina, Britain and Ireland. In early November they lifted a ban on imports of Canadian pork and beef that had been in place since June. This action suggests that Beijing does not want to be overly reliant on pork imports from the United States, especially as the “phase one” trade negotiations enter a critical phase.

The increase in global trade has led to a rise in pork prices in the major exporting regions. Pork prices in the European Union, China’s major supplier, have risen by more than 35 per cent since the beginning of 2019. And this trend is unlikely to reverse unless there is a significant, and quick rebound in Chinese production.

One positive sign is that China’s inventory of breeding sows rose by 0.6 per cent in October, the first monthly increase since April last year. On the 13,000 farms with pig production of greater than 5000 units per annum, the sow stocks increased by 4.7 per cent in October.

The total pig herd still declined by 0.6 per cent in October but was much lower than the 3 per cent drop in September. The October number was the smallest month-on-month contraction in more than twelve months and possibly signals the start of the recovery in the Chinese pig population. Only time will tell!

The Chinese government have stated that there will be a 10 million tonne shortfall in pork supply this year. And that will undoubtedly increase next year. The challenge here is that in 2018 total global pork exports were only 8 million tonnes. The global exportable surplus of pork is simply too small to fill the supply shortfall.

In a direct flow-on effect of the need for protein, Chinese imports of beef have also been increasing this year. October arrivals totalled almost 151,000 tonnes, an increase of 63 per cent in twelve months. In the first ten months of 2019 beef imports were 1.28 million tonnes, an increase of 55 per cent on the same period last year.

Australia does not have any pork plants approved for export to China and authorities have been waiting over two years to have 16 additional meat processing plants (including pork facilities) accredited by Chinese authorities.

However, we do have 35 beef plants with the required certification, and China’s importance as a destination for processed Australian beef has increased significantly in recent years. With the protein shortfall in China set to continue for some time yet, Australia’s contribution to this market should continue to flourish.

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

Nov 18 2019

Barley anti-dumping investigation remains a sleeping giant

Posted by GBA Administrator | Grain Brokers Australia News, Weekly Commentary | No Comments

The news late last week that the Ministry of Commerce (MOFCOM) of the People’s Republic of China had decided to extend the anti-dumping investigation into Australian barley imports, while disappointing, came as no surprise to most market pundits.

Citing the complexity of the case, MOFCOM announced that the probe would continue for an additional six months and will be completed by May 19, 2020.

The extension comes despite full cooperation by the Australian government, its agencies, industry bodies and exporters with the ministry’s investigation over the last twelve months. By all reports the detailed information sought by Beijing in the course of the investigation has been provided in accordance with their guidelines and timelines.

The ministry launched the probe in November last year, accusing Australia of dumping barley into the Chinese market at prices it considered below fair value.

World Trade Organization (WTO) rules state that anti-dumping probes should be completed within one year, though the investigating country does have the option of an additional six months under special circumstances. It seems that ‘complexity’ qualifies as there appears to have been no attempt by the WTO to intervene.

And our’s is not the only agricultural trade stoush involving China at the moment. Early this year Beijing halted purchases of Canadian canola alleging inspectors found pests in several shipments. This has led to a slump in Canadian canola exports and has left growers battling lower prices and holding silos full of unsold seed.

And the US-China trade war continues. The on-again, off-again negotiations have been excellent fodder for the world press. However, its impact on world trade and the global economy is growing rapidly.

According to the United States negotiators, the two countries held further constructive discussions (whatever that means) over the weekend. Completely different rhetoric is being reported in China, with officials there saying the two sides are not even on the same page. Plenty of work to do, it seems, before a deal is inked.

In recent times, Australia has been China’s largest supplier of barley with the grain going into both the brewing and stockfeed markets. In the 2017/18 marketing year (October 2017 to September 2018) China imported almost 6.5 million metric tonne (MMT) of Australian barley. This was valued at more than AU$2.2 billion and accounted for around 75 per cent of China’s barley imports in that year.

Though still significant, that dropped substantially in the 2018/19 season, to a tad under 2.4MMT. To put that in perspective, Japan, Thailand and Vietnam were the next biggest importers of Australian barley at 653,000, 205,000 and 112,000 metric tonne (MT) respectively.

What does this mean for exports of Australian barley over the 2019/20 marketing year? If past actions are a fair indicator of future intentions, it certainly doesn’t mean that there will be no barley trades to China.

While a significant proportion of last season’s export business to China would have already been on the books when the anti-dumping investigation was announced, there was 730,000mt shipped in the second half of the season. Most of this business was probably concluded after the investigation commenced.

However, any new crop sales are more likely to be malting barley as opposed to feed barley. Feed grain demand is falling as the African Swine Flu epidemic continues to decimate the pig population in China.

On the other hand, Chinese brewers prefer Australian malting barley over French on the basis of quality, and malting barley prices in Canada make that origin uncompetitive at the moment. In fact, market rumours are suggesting that as much as 500,000MT of new crop Australian business may have already been concluded.

The expectation is that barley exports to China will be down again this year. Those exporters that are willing to accept China as a trade counterparty are likely to trickle barley onto the Chinese mainland but will minimise risk by doing so one, or maybe two, cargos at a time.

Outside of China, Saudi Arabia, in particular the port of Dammam in the Arabian Gulf, increases in significance as a destination for Australia’s exportable surplus in the first half of 2020. Australian exporters would certainly be hoping to do more than the one, 66,000MT, cargo shipped to the Gulf state in the 2018/19 season.

The Saudi Arabian Grain Organisation (SAGO) announced a tender late last week for 1.02MMT of animal feed barley for February and March arrival. The results were released on Monday with offers received from Australia, the European Union, the United States, Argentina and the Black Sea region.

In the end, SAGO booked 17 individual consignments of 60,000MT, with 13 (780,000MT) destined for Red Sea ports and 4 (240,000MT) to be delivered to Arabian Gulf ports. The average price of US$216.62 was an increase of US$6.67 (approximately AU$10) on the previous tender for an identical quantity on September 30.

Looking at the breakdown of offers, and the companies involved, it would be safe to assume that a significant portion of the Arabian Gulf business will be executed out of Australian ports and, surprisingly, some of the Red Sea shipments may also be Australian origin. Great news for domestic barley growers in a week when China disappointed.

With Australia’s freight advantage over the Black Sea and Europe, domestic exporters will also be looking to other traditional Asian consumers such as Japan, Thailand and Indonesia to step up to the plate and increase their imports of Australian barley over the next ten months.

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

Nov 14 2019

Global grain markets looking for direction after benign WASDE report…

Posted by GBA Administrator | Grain Brokers Australia News, USDA WASDE Report, Weekly Commentary | No Comments

The United States Department of Agriculture (USDA) released their November World Agricultural Supply and Demand Estimates (WASDE) to the market last Friday (Saturday morning down under) and there was nothing to get the trade, or futures markets, too excited.

Chicago Board of Trade (CBOT) December wheat futures closed the week at 510¼ cents per bushel (c/bu), down 2¼ c/bu on the day and down 5¾ c/bu for the week. Wheat futures have been trending downward since a 3-month high of 532¼ c/bu was set on October 18. That equates to a fall of almost AU$12 over the last three weeks.

The December corn futures contract closed last Friday’s trade at 377¼ c/bu, up 2 c/bu on the day but down 12 c/bu for the week. The soybean contract for November closed at 919½ c/bu, down 5½ c/bu on the day and down 4¾ c/bu for the week. Like wheat, both corn and soybean futures have been trending lower in recent weeks and have lost the equivalent of just under AU$12 and just over AU$11 respectively since the highs of mid-October.

The WASDE wheat production numbers were basically a juggling act, the result being a small global increase of around 0.3 million metric tonne (MMT). Australian production was decreased by 0.8MMT to 17.2MMt, similar to last year’s final number. However, this is still around 1.5MMT above many domestic trade estimates, and a further reduction is expected in the next report, due for release on December 10.

Argentine wheat production was decreased by 0.5MMT to 20MMT. Like Australia, this is around 1.5MMT above the most recent estimates emanating from the South American republic. Last season’s production was 19.5MMT. Reaping has commenced in many parts of the country, and the Buenos Aires Grain Exchange called the wheat harvest 7 per cent done compared to 11 per cent at the same time last year.

The United States (US) was the other major wheat producer which saw production fall compared to last month. The USDA pegged 2019/20 production at 52.3MMT, a decrease of 1.1MMT, but still, 1MMT higher than last season.

Planting of the next US winter wheat crop is well underway with 94 per cent expected to be planted by early this week. This compares to 89 per cent last week, 85 per cent last year and 92 per cent on average. Crop ratings are expected to be unchanged week-on-week at 57 per cent good to excellent, versus 51 per cent last year.

On the positive side of the equation, Ukraine, Russia and the European Union (EU) all saw increases to their final wheat numbers for the 2019/20 season compared to the October report. Ukraine production was increased by 0.3MMT to 29MMT. This represents a significant year-on-year increase of 4MMT, or 16 per cent.

The USDA increased Russian production by 1.5MMT to 74MMT. Here again, the USDA appears to be conservative with their revised estimate as local Russian forecasts are around 1-2MMT higher. That said, it is still around 2.3MMT higher than 2018/19 production.

The most significant increase to global wheat numbers in Friday’s WASDE report came in the EU. Production was posted at 153MMT, an increase of 1MMT compared to October and an increase of 16MMT compared to last season. However, the USDA number is 3MMT lower than the most recent European Commission wheat forecast of 156MMT.

In France, the European Union’s biggest wheat producer, planting of the winter wheat crop is delayed by wet weather. The French state grains board, FranceAgrimer, estimates that 67 per cent of the soft wheat crop has been planted, up 13 per cent on the previous week, but still well behind the long term average of 82 per cent.

With global wheat demand remaining static, the washup of all of the production changes was an increase in world ending stocks to a record 288.3MMT, 142.6MMT (49 per cent) of which is held outside of China.

On the barley front, the WASDE report was slightly bullish. The USDA cut Australian production by 0.2MMT to 8.4MMT. While this may be achievable, it appears to be on the high side based on the hard finish experienced in almost all the major barley production regions of the country.

Elsewhere, Argentine production was decreased by 0.1MMT to 4.7MMT (5.1MMT last year), the EU was raised by 0.2MMT to 61.8MMT (55.9MMT last year), and Ukraine was increased by 0.3MMT to 9.5MMT (7.6MMT last year).

The USDA increased global barley demand by 0.8MMT, predominantly in Russia, Ukraine and EU and world ending stocks were decreased by 0.8MMT, mostly in Russia and Saudi Arabia. Australian barley exports were reduced by 0.2MMT to 4.3MMT, and China’s barley imports were cut by 0.2MMT to 6.3MMt (5.5MMT last year).

There were several decreases to global corn supply, but most had already been factored into trade calculations, hence the subdued futures market reaction. US production was down by 3MMT after the yield forecast was decreased to 167 bushels per acre (10.5 metric tonne per hectare). Mexican, Ukraine and EU production were cut by 2MMT, 0.5MMT and 0.2MMT respectively, and Russian was increased by 0.5MMT.

US corn demand was down by 1.2MMT, but world demand was increased by 0.8MMT compared to the last WASDE report. World ending stocks are forecast to decrease by 6.6MMT, predominantly in Brazil, China, EU and the US.

The soybean numbers were quite benign, with global production down by 2.4MMT, mainly in India and Canada, and global demand down by 2.4MMT, primarily in India, China and the United States.

The grain market needs news, and the WASDE report provided nothing that wasn’t already known and factored into global thinking. From a wheat and barley perspective, 2019/20 production is basically known, even though the USDA numbers still need a little tweaking in several key jurisdictions.

A resolution, or otherwise, to trade disputes involving China is a key driver in the near term. The big one, of course, is the US standoff, with Trump seemingly dousing the most recent positive news with his usual Twitter diplomacy.

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

Nov 05 2019

Market awaits news from China as the barley harvest swings into gear…

Posted by GBA Administrator | Weekly Commentary | No Comments

Farmer selling has picked up over the past week as the 2019 harvest gathers momentum in the southern grain-growing regions of Australia. And the market pressure created by this increase in supply, in conjunction with a rally in the Australian dollar, pushed grain prices lower across the board.

The Central Queensland wheat harvest came in close to industry expectations at around 375,000 metric tonne, and on-farm storages are filled to the brim as growers take advantage of a lack of production in the southern part of the state. This grain will be trickled into the domestic market over the coming months, filling part of the void created by abysmal production in southern Queensland and northern New South Wales.

The southern Queensland harvest has come and almost gone in a very short period of time. There were isolated pockets of harvestable grain that weren’t cut for hay, but on the whole, the ongoing drought has pushed production lower than last year’s dismal total.

The story in northern and central New South Wales is no better. These regions should be a hive of activity with headers rolling and queues at the local silo a feature. Instead, the paddocks are bare, and many silos haven’t even opened due to the record low production. What has been produced will go directly into the domestic market or is being stored on-farm for delivery to local end-users in 2020.

The production outlook in Southern New South Wales, Victoria, South Australia and West Australia is far better, and this is where the supply pressure is being seen as growers look for cash flow by selling off the header. Falling grower bids may well stem the tide of selling, so cash prices become a function of how desperately the trade need to buy. With domestic demand covered, export interest will be the most likely catalyst for an increase in buyer appetite.

Barley has dominated harvest proceedings thus far. Reports from the field suggest that early barley quality, and yields, have been quite variable as the tough finish manifests itself in high screenings and low malting barley selection rates in many districts. That said, it seems that yields, on the whole, are surprising to the upside.

The price of wheat delivered onto the Darling Downs retreated around $5 last week to close at about $410. Western Australia and the Eyre Peninsula are the regions most likely to ship wheat around to Brisbane over the next 12 months, and grower bids at those ports fell by around $7 across the week. Geelong bids fell by the same number.

On the other hand, the price of feed barley delivered Darling Downs region remained steady across the week at around $375. The Geelong and Kwinana feed barley bids fell by $10, and the Port Adelaide and Port Lincoln bids fell by $5 across the week.

Port Lincoln is the cheapest Australian grain at the moment with ASW wheat and feed barley values now down to US$225 Free on Board (FOB) and US$193 FOB respectively. Kwinana port values sit at around a US$8 premium for both grains. Both ports should be competitive into the wheat export pathway at those values, and recent sales of wheat out of Western Australia support that notion.

Barley, however, is a different story. Australia has relied heavily on China in recent years. November 18 is the anniversary of the launch of the anti-dumping probe by the Chinese Ministry of Commerce (MOFCOM). Under the World Trade Organisation (WTO) regulations results of such investigations, or some guidance on potential actions, are expected within 12 months, but a six-month extension can be granted.

The Australian trade will be looking to Beijing to provide such guidance, whether positive or negative, in the next few weeks so that the market has some direction and certainty through harvest and into the New Year. There are rumours of small volumes being traded, but most exporters are not willing to entertain Chinese enquiries due to the execution risk any sales would present under the current circumstances.

So, where does the Australian barley exporter look in the absence of Chinese demand? Saudi Arabia is the logical answer. Black Sea values were sitting at around US$190 FOB last week. Add freight of US$25 makes it US$215 Cost & Freight (C&F) into the Red Sea port of Jeddah. That compares US$226 C&F ex WA using US$200 FOB Kwinana and freight of US$26. Out of Port Lincoln, it works out at US$223 C&F using freight of US$30. So no joy into Jeddah at current values!

How about the Persian Gulf port of Dammam? Freight from the Black Sea into Dammam is around US$11 over Jeddah. Freight out of Australian ports would be the same as Jeddah. Suddenly, at last week’s prices, Australia is competitive against Black Sea origin for the next Saudi tender.

However, Argentina could well rain on our parade. Export barley values out of the deep-sea port of Bahia Blanca were quoted at US$170 last week. Add freight of around US$42, and Argentina trumps both the Black Sea and Australia at the next tender. Argentina likes to get the business on early, so are also likely to be the weakest seller. This is especially the case at the moment as the new Peronist government is threatening to increase export taxes.

The only other obvious export options at the moment are Thailand and Indonesia. The later is expected to be looking to Australian supply once the free trade agreement has been ratified. It has been tabled in the Indonesian parliament and will be debated in the Australian Senate this month. Endorsement by both parties is expected by year’s end.

Domestically, the Queensland stockfeed market will continue to require feed barley from Victoria, South Australia and Western Australia for the next 12 months. At the current delivered Darling Downs spread of $35, feed barley is buying demand away from wheat, and the consumer has been taking advantage of the relative value in recent weeks.

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

Oct 31 2019

Concerns are mounting over this season’s sorghum production

Posted by GBA Administrator | Weekly Commentary | No Comments

Concerns are mounting over this season’s sorghum production…

It is now the end of October, two months into the summer crop planting season, and virtually no sorghum has been planted in northern New South Wales and southern Queensland.

These cropping regions traditionally have a summer dominant rainfall pattern. However, that tradition has been seriously challenged in recent years, with the region in the grips of a drought, the likes of which has never been previously experienced.

Basically, the tap turned off in late October 2016, and rainfall since then has been well below average across almost all districts. This means that the soil moisture profile in most of the summer cropping regions of Australia remains at, or near, record low levels.

In addition, the water storages that usually supply irrigation water to the region are extremely low, and zero water allocations in most river systems reflect the dire situation facing the irrigation industry in the Murray-Darling Basin this summer.

Much of this year’s winter crop in northern New South Wales and southern Queensland was not planted due to the lack of soil moisture. Concern is now mounting that the same scenario may play out for this season’s sorghum crop.

Planting of sorghum in these regions normally starts in early spring with the primary requirements being an adequate soil moisture profile, the soil temperature at, or above, 16°C and rising, and the risk of frost has passed.

However, planting sorghum in November is traditionally shunned in northern New South Wales and southern Queensland. This is a strategy to reduce production risk by avoiding flowering in the peak of summer. As a result, there are typically two distinct planting windows. The soil temperature and frost thresholds are well behind us, but most growers require a minimum of 100-150mm of slow, soaking, rain, preferably of a couple of falls, before they would consider planting.

There is an early planting window which opens as soon as conditions are suitable but shuts at the end of October. Then there is the late planting window that goes from early December through to early, or even as late as mid-January, depending on geographic location.

With the traditional early planting window all but closed, it will be fascinating to see how growers react if they receive enough rainfall to plant before the end of November. Will they plant immediately or stick to a proven formula and delay until early December?

In the last two springs, many growers planted sorghum on a less than ideal soil moisture profile. They were banking on average to above average summer rains to get the crop through to harvest. Unfortunately, the rains did not eventuate, and the crops suffered accordingly. Growers cannot afford a third summer crop failure, and there will be a distinct reluctance to plant unless the soil moisture profile is full, or almost full.

Nevertheless, it is definitely not too late to get a significant sorghum crop in the ground. And there is always Central Queensland to help save the day. Harvest of an above-average winter crop is now winding down in that region and the traditional sorghum planting window of January through to mid-February is still two months away.

National production of as much as 1.5 million metric tonnes (MMT) is still possible, but the likelihood is falling with each dry day. When the rains do arrive, growers will undoubtedly react quickly as long as it is not too late. If it is, they will focus on retaining the soil moisture for a big winter crop plant in the autumn.

Domestic sorghum demand generally fluctuates between 850,000 metric tonne (MT) and 1.2MMT per annum, depending on the price of sorghum relative to alternative feed grains such as wheat and barley.

Sorghum is used as a source of starch in the ethanol industry on the Darling Downs. While the plant can use barley, it is not the preferred feedstock, and as such the annual sorghum demand of around 180-200,000MT is relatively inelastic. The same can be said for 400,000MT of core demand from the poultry sector in New South Wales and Queensland, although that has been decreasing in recent years.

A quick look at recent production history suggests that Australia generally produces at least 1 million metric tonnes. In the last 25 years, there has been only one year where production was less; 2016 production was 994,000MT. And one has to go back as far as 1992 to find a year where production was significantly lower at 550,000MT.

At the moment, most in the trade would still have sorghum demand pencilled in for 800,000MT to 1MMT. If sufficient rain fails to arrive in the next two months to achieve production of that magnitude, some serious demand rationing will ensue. And white grains from Victoria, South Australia and Western Australia will be called upon to fill the void.

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

Oct 25 2019

Global wheat values rally as the Australian harvest commences…

Posted by GBA Administrator | Weekly Commentary | No Comments

International wheat prices continued to firm last week on the back of crop downgrades in the southern hemisphere, delays to the spring wheat harvest in North America, rumours of Chinese interest in United States wheat and firmer cash offers, particularly out of the Black Sea region.

All this drew attention away from burdensome global wheat supplies and prompted a round of short-covering by both the trade and funds, with the latter square or slightly long by week’s end.

The Chicago Board of Trade soft red winter December wheat contract closed Friday’s session at a fourteen-week high of 532¼ cents per bushel (c/bu). This is a rise of 78¾ c/bu, or 17.4 per cent, since the most recent contract low of 453½ c/bu, set on September 3. The contract rose 24 ¼ c/bu across the week, or almost 5 per cent, to register its seventh consecutive weekly advance.

Argentine wheat crop estimates continue to leak lower on the back of sustained dryness across crucial production areas. Recent rains in many regions have not been strong enough to help wheat fields left gasping for moisture after weeks of dryness.

Weather and crop forecaster Maxar is calling the Argentine wheat crop 18.7 million metric tonne (MMT), and at least one commercial trading house is said to be calling the wheat crop as low as 18.2MMT. This compares to the latest USDA estimate of 20.5MMT.

The Buenos Aires Grain Exchange (BAGE) suggested that while crop potential had stabilised in the east, yield losses could be as high as 40 per cent in southern Cordoba, eastern La Pampa and western Buenos Aires, and this number could potentially increase if critical spring rains do not arrive in time.

BAGE still put the winter wheat area at 6.6 million hectares, but it appears that they are preparing the market for a downward revision of their current 19.8MMT forecast when they update production estimates sometime this week.

The spring wheat harvest in the Dakotas and Minnesota continues to be dogged by rainfall, snow and blizzards. There is talk that any unharvested wheat is either going to be ploughed under for insurance, grazed out, or baled up for hay as the weather is now unlikely to remain favourable for long enough to get a header into the fields.

If that is true, global supply may end up losing 20 or 30 million bushels (550,000 to 820,000 metric tonne) when the USDA update production numbers in their November report.

The Canadian farmers are faring much worse, as rains and snow continue unabated. At least a quarter of the Canadian Western Red Spring (CWRS) wheat crop yet to be reaped. While 95 per cent of the wheat area in Manitoba had reportedly been harvested by last week, only 70 per cent of the Saskatchewan crop and 60 per cent of the Alberta crop was thought to be in the bin.

Rumours surfaced midway through last week of China wanting to purchase as much as 2MMT of wheat from the United States. There was no talk of wheat being on Beijing’s US$50 billion shopping list when news of the trade war breakthrough surfaced last week, and there are still no details, no grade breakdown, and no indication of anyone asking for offers.

However, news that wheat may now be included in the yet to be signed trade deal has generated some excitement in the US, and the futures and cash markets reacted accordingly.

Meanwhile, Egypt’s state-owned grain buyer GASC announced last week that it had purchased 405,000 tonnes of wheat for November 21-30 delivery in its latest tender. The purchase included 285,000 metric tonnes of Russian, 60,000 metric tonne of Ukrainian and the same quantity of French origin.

The average purchase price was around $212.50 FOB and once freight was added it equated to $230.70 C&F. The price reflected the significant rise in European Union and Black Sea markets since the start of the month. The average Black Sea FOB price was US$8.70 higher than the previous GASC purchase on October 9.

The higher price follows a rally in domestic wheat prices in Russia in recent weeks, and there appear to be several factors at play. There are reports of significant trade shorts that have been forced to cover when the market move caught them off guard, and there are also traders getting long in anticipation of further market gains.

The internal rally has also stoked up demand from the domestic sector in Russia. This is particularly the case for milling wheat which is reacting to competition from Kazakhstan due to their crop shortfall. Kazakhstan is the world’s second-biggest flour exporter, and a significantly smaller crop this season, along with poor quality, has sent buyers across the border to try and cover the supply deficit.

Here in Australia wheat prices were stable to slightly firmer last week despite a further deterioration in crop conditions in most regions. The National Australia Bank decreased its domestic wheat production forecast by 1.5MMT to 15.5MMT compared to their September number.

Interestingly, the rally in Russian wheat prices has seen the spread to Western Australian export values narrow to around US$30. This was as high as US$50 only one month ago but is still too high for domestic exporters to buy international demand, even with the freight advantage Australia holds into key Asian destinations.

Reaping may have started in a number of areas, but the harvest price pressure is still ahead of us. It remains to be seen how that will play out this season. There is likely to be a reluctance on behalf of the trade to repeat last year’s harvest buying spree unless they can compete into the export market. But how will the grower react if prices fall?

Uncertainty around the final size of the Australian wheat crop and the exportable surplus only adds to the conundrum.

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

Oct 18 2019

Harvest action heats up in Europe …

Posted by GBA Administrator | Weekly Commentary | No Comments

Many European regions recorded record high temperatures last week as the continent sweltered through its second heatwave of the summer. However, reaction of the grain markets has been tempered by expectations that this heatwave will be short-lived and is not expected to last long enough to cause severe losses in winter crop production.

Field conditions through most of Europe are generally quite good, and the trade is not expecting a repeat of last year’s terrible harvest. Those crops that were still at grain fill stage may lose between 0.25 and 0.50 metric tonne per hectare (MT/ha), but the heat will probably lead to a boost in protein levels according to local analysts.

Government agency FranceAgriMer said that 63 per cent of French wheat had been harvested by July 22, compared to 33 per cent only one week earlier, and 88 per cent at the same time last year. The dry conditions are ideal for reaping, and the French wheat harvest is expected to be almost completed by month-end with production in the 38 to 39 million metric tonne (MMT) range.

Harvest in Germany, the second-biggest wheat producer in the European Union (EU), is also progressing well. Reports suggest that it is now more than half completed with yields equal to, or even a little better than expectations.

The condition of the French corn crop had fallen to a rating of 67 per cent good to excellent before the record heat struck last week. This compares to 75 per cent a week earlier. The corn crop is at a critical growth stage and yields will fall dramatically if beneficial rains don’t arrive very soon. The latest heatwave will no doubt take a further toll on the health of the crop and this is expected to be reflected when crop rating numbers are updated this week.

There is talk in the trade of corn fields in northern France being cut for silage due to the heat; a trend that will be monitored closely in coming weeks. The trade is now estimating the country’s corn production at around 11MMT, versus 13MMT last year. Some rain over the weekend bought relief in some areas to pollinating corn crops.

Meanwhile, the International Grain Council (IGC) released its latest grain market report last Thursday. It was highlighted by a 6MMT decrease in global wheat production to 763MMT. While still a record, the decline is a reflection of smaller crops in the European Union, Russia and Canada compared to their June report.

The IGC pegged EU wheat production at 148.7MMT. This compares to their June estimate of 151.2MMT and 128.8MMT last season. There were downward revisions for France, Germany, Britain and Poland, primarily due to the June heatwave, which occurred when the crop was more susceptible to damage, as opposed to last week’s high temperature hit.

The Russian wheat crop was trimmed by 5 per cent from 79.5MMT to 75.7MMT. This is still higher than SovEcon’s latest forecast, which was pared by another 2.9MMT last week to 73.7MMT. The Russian agency also slashed its wheat export forecast for the 2019/20 marketing year by 6.2MMT to 31.4MMT. This is well below the 2018/19 export volume of 36MMT.

Moscow agency Rosselkhoznadzor (Federal Service for Veterinary and Phytosanitary Surveillance) said the Russian wheat harvest was 36 per cent completed as of late last week, with average yields coming in at around 3.7MT/ha, versus 3.83MT/ha last year. However, yields have been trending downward as harvest has progressed, a result of extremely dry conditions throughout June.

The IGC also cut the Canadian wheat crop by 5 per cent, from 33.6MMT to 32MMT. The crops in many regions showed stress after a dry spell through June and early July. Rainfall in late July has improved the soil moisture situation but conditions are reported to be quite variable from region to region.

Ukraine is reported to have completed 76 per cent of this year’s wheat and barley harvest. As of last Thursday, 19.7MMT of wheat and 6.7MMT of barley were in the bin. Wheat yields are reported to be improving as the harvest progresses with the average now sitting at around 3.85MT/ha, compared to 3.59MT/ha just a week earlier.

Some traders are reportedly increasing their Ukrainian wheat production estimates to 28MMT, or even higher, given the improving yield trend. This compares to the Agriculture Ministry’s estimate of 26.9MMT. The quality of Ukrainian wheat is excellent with about two-thirds milling quality and one third feed quality. This has caught the trade by surprise, leaving feed wheat shorts scrambling.

In further trade news, China’s General Administration of Customs (GAC) has reportedly granted permits for wheat imports from Russia, specifically from the country’s Kurgan region. This will compete with Australian origin wheat into China, particularly the northern ports. GAC has also approved soybean imports from all parts of Russia.

Closer to home, a group of private importers from the Philippines purchased 275,000 metric tonne of Australian feed wheat from CBH for October to December shipment at an average price of AU$240.60 Cost & Freight (C&F).

That is quite interesting when compared to Black Sea values. European harvest pressure sees Black Sea wheat prices challenging season lows with sluggish global demand and a lack of forward sales holding values at bay.

Last week Black Sea feed wheat was quoted at around US$187 Free on Board (FOB) for September. Add sea freight of US$33, and the 7 per cent import duty, the Black Sea origin price comes to US$235 C&F, more than US$5 under where the business was booked.

Does that represent a quality premium for Australian origin? Unlikely for feed wheat. Are replacement Black Sea values higher than are being reported? Maybe. Or is there a reluctance to book Black Sea origin over Australian at similar price levels? Hopefully so, as that will augur well for Australia’s marketing program into Asia moving forward.

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