A silver lining on a less than perfect season

A silver lining on a less than perfect season


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Agfarm analysts break down what's happening in the global markets and what it means for local wheat growers.

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The 2018/19 harvest is now nearing an end and grain growers nationwide are sifting through the flurry of grain marketing options deciding how to best market their uncommitted tonnes.

To assist in your decision making and help identify potential opportunities in 2019, we’re going to look at the current global supply and demand model, the domestic supply and demand and weather outlook, and what all this means to Aussie grain growers when making grain marketing decisions this season.

The United States Department of Agriculture (USDA) released an updated World Agricultural Supply and Demand Estimates (WASDE) on Wednesday, December, 12. This report investigated key supply and demand figures for agricultural commodities globally.

The USDA has Australian production now at 17MMT, down from the November report of 17.5MMT but this was offset by the report showing Australian wheat exports decreasing by 1MMT.  

The 2018/19 season wheat numbers aren’t looking favourable and will for the first time in six years, see a production decrease in global wheat. As we’ve explored in the past, large cuts in Russian (15MMT), Australian (5.5MMT) and EU (28.5MMT) wheat production since last year has seen world demand for wheat larger than global wheat production. This has resulted in global ending stocks becoming tight at 35.97 per cent, which should see global wheat values remain well supported over the longer term.

It is a similar story for global barley. Global demand for barley is typically in line with production and has little room for a crop failure. So, world ending stocks are very tight suggesting prices will be well supported over the short to medium term. 

Back home, we’re running our own supply and demand race, all due to the hideously dry weather the East Coast and South Australia has endured for far too long now. And unfortunately, there is little reprieve in sight. The Bureau of Meteorology (BOM) released its climate outlook for December 2018 – January 2019. It didn’t point to drought breaking rains like we’ve all been hoping for. It did the opposite. The outlook showed drier than average conditions, warmer than average temperatures and a 70 per cent chance of an El Niño occurring. Great!

As the longer-term weather models are showing an El Niño is likely, we need to understand what domestic grain prices may do if this holds true.

Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) released the December edition of the Australian Crop Report and forecasted a cut in total winter crop production at 29.3 MMT, a decrease of 23 per cent year on year.

ABARES have now pegged the 2018/19 wheat production at 16.956MMT, a decrease of 4.288MMT year on year, barley production at 7.312MMT, a decrease of 1.616MMT and canola is pegged at 2.241MMT, a drop of 1.428MMT.  

First, let’s look at the East Coast onfarm feeding situation. This statement may seem obvious, but while an element of supplementary feeding is common, livestock farmers and domestic feedlotters still rely heavily on a good ‘green pick’ to keep the animals going.

So, as we’ve seen over the past six months particularly, the reduced green pick has increased the demand for feed grain to keep these animals alive. Looking forward, the dry outlook (resulting in minimal green pick) should see grain consumption for the livestock sector keep growing and exceed last year’s demand.

Now here in lies an issue… our crop is smaller year on year, and our demand could be higher. This should see domestic buyers push grain markets higher into 2019 as they scramble for cover in a tight year.

On top of the dry outlook, logistics will be put under a lot of pressure into 2019. As we have touched on in the past, the dire weather plaguing most parts of Australia’s cropping belt, particularly the eastern seaboard, has seen our traditional logistics model run in reverse.

Grain is moving by vessel from Western Australia and by rail and road from South Australia to the east coast to help feed domestic demand. We’re then importing grain from the east coast ports and moving it up country.

This unusual reverse movement coupled with the distance traveled will put extreme pressure on the supply chain and is expected to cause delays in delivery creating short positions which will need to be covered throughout the year.

It all sounds pretty dire right. Small global crop, 70 per cent chance of an El Niño in Australia, delays in delivering grain and more demand than supply. Where is the silver lining you ask? It’s in the price. And for those able to hold grain into next year, it looks as though it might just pay off. If you look at all the global and domestic factors at play here there is nothing to suggest the price of grain will fall as we move into 2019, everything we see suggests it’s going to go higher.

Even (hopefully) if there is a drought breaking rain, we’re still running on fumes until next season’s crop comes off replenishing the depleted supply. The marketing decision? The industry has a huge task ahead to ensure grain is available to meet the domestic and international demand complex and this, in theory, should work in the favour of grain growers this season.

Like we always say, each business is different and a strategy that works well for one farmer may not work for another. But, deferring a portion of your grain sales into 2019 looks as though it could be the silver lining this season.

Agfarm Advantage is a deferred grain sales program celebrating 10 years of great performance. The program is designed to separate your grain marketing and cash flow needs by providing you with multiple payment options, and then selling your grain post-harvest outside of harvest pricing pressure.

For more information on how Advantage works and to see previous years outstanding results, visit the webpage www.agfarm.com.au/advantage or call Agfarm on 1300 243 276.

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The story A silver lining on a less than perfect season first appeared on The Land.

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