Has grain finally peaked?

THE GRAIN market may have hit its peak, both domestically and internationally, as traders and farmers both finally achieve cover for their positions.For weeks, the Australian market has been bubbling over at levels far above international parity, and far above what could reasonably have been expected, given production estimates.Most of the trade talk centred on panic buying both from grain buyers, caught short on their position and from growers looking to wash-out forward contracts.Already, the drought has forced one grain buyer, Barry Smith Grains, based in Moree, NSW, into administration and there are constant rumours of others, big and small, that are not comfortable with their position.After a flurry of price rises, finally growers appear to be taking heed of the advice of grain marketing advisers who are telling those needing to wash-out not to panic and to wait until closer to the contract expiry in sourcing the grain, when traditional harvest price falls may see them able to fulfil their contractual obligations more economically.Analyst Malcolm Bartholomaeus also raised two other factors bringing the price down slightly domestically. He said prices of more than $400 a tonne for old crop cereals were flushing out small packages of grain from growers, especially in South Australia, keeping a lid on new season values.In addition, small amounts of rainfall last week of between 10 and 15 millimetres in some cropping areas throughout South Australia and Victoria has also been a mild boost in shoring up some crop production, although mid-range forecasts for a dry 10 days in many cropping areas is mitigating this rain.On the other hand, Mr Bartholomaeus said forecasting models showed good falls through mid-October, and while he acknowledged they had no great accuracy, he said they could be used as one means to bring prices down somewhat.Internationally, Chicago Board of Trade December 07 futures came back from US952 cents a bushel earlier in the week to trade limit down to US922c/bu on Wednesday.Commonwealth Bank analyst Tobin Gorey said a rising US dollar made wheat a less attractive investment.“The catalyst for the sharp drop seems to have been a combination of a sharp rise in the US dollar and, to a lesser extent, a decline in crude oil prices,” Mr Gorey said.The decline in oil prices makes biofuel produced from corn less competitive, and has a flow-on to other grain markets.AWB’s new season pool estimates for benchmark Australian Premium White this week broke through the $400/t market, with a rise in estimated pool returns of $65/t for the benchmark APW paygrade.AWB’s decision to raise the pool estimates was based on low world wheat stocks, continued strong international wheat price levels and the national pool’s aim to execute sales in late 2007 and early 2008 to capture the current high international wheat prices.Domestically, there has been a slight easing of the pricing fever, which saw January 08 ASX wheat futures peak at $492/t.The futures have come back to $455/t this week, while straightforward contract prices have also come back slightly, with ABB cash prices for wheat falling below $400/t and barley also easy.The price drop is believed to have come about because of patchy rain through the cropping belt and also some old crop grain being flushed out, with sellers coming forward for wheat at $400/t.