EAST COAST grain prices sit at high enough levels to attract all surplus tonnes from Western Australia and South Australia according to the head of strategy with a grain marketing service.
Nick Crundall, Market Check, said east coast basis, in excess of $200/t on world markets in some cases, meant grain sellers from the two western states would look to get grain into eastern markets, given prices were so much higher than current international values..
Prices have risen once again this week on the back of concerns about increasing dryness and frost, particularly in Western Australia and Victoria which were previously two of the better placed states in terms of seasonal conditions.
“The ASX (Australian Stock Exchange) wheat futures contract is leading the charge, it has leapt up this week, incentivizing grain from WA and SA to come across,” Mr Crundall said.
“This is what needed to happen, spreads are reflecting what has to happen to get the balance sheet right.”
The ASX January east coast contract soared over 2pc on Monday on the back of fears of frost damage in Western Australia to $434.50.
Mr Crundall also said the deterioration of the Victorian grain crop was leading to higher east coast prices.
“Victoria was going to be the bread basket for NSW and Queensland this year, we had figures that suggested up to 800,000 tonnes of Victorian grain would head over the Murray River but with dry and frost in that state we could see a situation where there is basically only enough for their own domestic market.
“Every tonne that doesn’t come from Victoria has to be found from somewhere else, which is another factor prices are going even higher.”
Adam Robinson, Robinson Grain, which has offices in Dubbo, Toowoomba and Sydney, said in spite of the close to record prices caused by the drought, domestic end users, particularly in the sheep industry, continued to hunt for grain.
“The difference between this and other droughts is that for the livestock guys, the price for their product is good.
“We’ve got record wool and lamb prices, so there is a return there.
“Even at $500/t for wheat, finishing lambs is still profitable, obviously they don’t want to be paying that type of money for grain, but even at that value it still makes sense to feed them and that is why the market is allowing grain prices to go where they are,” Mr Robinson said.
He said the margins were less secure for other livestock industries.
“It is definitely easiest to make the sums add up for the guys that have sheep.”
Mr Crundall said while long-term export customers would be able to source Australian grain, the balance sheet would be razor thin.
“The exportable surplus will be very close to inelastic demand from long-term customers,” he said.
Mr Robinson said he expected NSW and Queensland demand for interstate grain to be around 1.5-2m tonnes this season.
He said domestic end users were hoping for summer rain to allow for a sorghum crop to provide some price relief.