COMMODITY UPDATE
Market Observations

Reflecting on the first half of 2022, volatile grain markets remind us how much our local prices are influenced by overseas events. The key drivers of agricultural commodity prices are essentially the result of global growing conditions, stocks, supply, demand, and logistical capabilities. However, there are many other factors to be considered that drive global grain prices and futures markets.

With the invasion of Ukraine earlier in the year, a major proportion of the world’s grain and seeds supplies were immediately cut off from the market and how much remains is still uncertain. As a result, cash and futures markets around the world soared within a matter of days, with the uncertainty of where the market rally may end. The restricted volume flowing to the global market as a result of the invasion was only part of the problem.

The Black Sea region is considered a crucial supplier for many of the world’s poorer nations. So, poorer importing countries have not only had to weather a significant lift in global grain costs, but they have been forced to look elsewhere for supply. This has meant the need to compete in premium markets for qualities of grain they would not normally source. Many of the poorer nations in the world do not have the capabilities of engaging in such market extremities which ultimately has had the knock on effect of generating the developing food crisis’ we see unfolding in less fortunate countries. Needless to say the situation in Ukraine is also throwing fuel on the fire for global rising costs of living, particularly where food and energy are concerned.

The months following the invasion has seen grain and oilseed prices ebb and flow. This is mainly on the back of Ukrainian grain speculation and it’s level of availability. Markets have seen wild daily swings on news that would later prove unfounded. By June, the market had taken account unavailable Ukrainian grain stock not making it into the global supply-chain and started focussing on the positive aspects that were developing around the world; namely a Northern hemisphere harvest with better expectations than the previous season, a reduction in the global demand, shifts in quality demand, shifts in the consumers choice of commodities and positive weather conditions for plantings in countries such as Australia. Cash and futures markets dropped from their previous dizzying heights buoyed by further talks of market access to Ukrainian grains and seeds. The decline in prices continued through June and into July where a stable base is currently found. The market has taken into account the real possibility that Ukrainian grain might flow again soon, but the current price points at this stage are the result of world markets grappling with the notion of high inflation, rising food and fuel costs and what that means for demand in the months ahead.

The reduction in global grain prices has not impacted Australian levels to the same extremes, but have had an effect nonetheless. Even though Australian grain is highly competitive in comparison to the price of grain from other origins (to the point where it is still some of the cheapest grain in the world), it is getting back to being on a more level playing field. The Australian 2022/23 crop is on track to be fruitful again and at this stage appears like exporters will be actively seeking to distribute Aussie grain into traditional and new export markets throughout 2023. The industry outlook is for circa 32-33 million tonnes of wheat which would place it in the top 4 years of production. Whilst this should provide some comfort, we stress that in our biggest export year 2021/2022 we saw the biggest volatility.

We still have months ahead before we glean the real results of the Australian harvest, but one thing we do know is that markets will always continue to trade with the element of unpredictability in challenging global times.

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