COMMODITY UPDATE
Market Observations: July

As we reach the years halfway mark and look back on Australian domestic grain prices, we have observed a relatively flat market for our main feed commodities – Wheat and Barley.

In comparison to grain prices from other global origins, Australian prices haven’t experienced anywhere near the same market fluctuations. U.S and European futures exchanges from January to June have grappled with the normal weather concerns all grain growing regions experience in the Spring as the crop enters a crucial stage of its life cycle. At the same time, Australia having completed its harvest successfully, looked forward to a sowing campaign in Autumn with an encouraging moisture profile.

Earlier in the year, Australian Wheat exports had been plentiful with shipping stems full on the back of very competitive Australian Wheat prices and profitable export margins. After a record crop and the Northern hemisphere harvest still months away, Australian grain continued its flow into both traditional and non-traditional homes. During this period exports from the Black Sea continued at pace even with the ever-present potential for restrictions on access to Ukraines crop still looming large. As the Northern hemisphere crop looked more promising deep into Spring, futures markets reacted with approval and the sell off began gaining momentum with European crops also showing promising forecasts. In the meantime, Australian cash markets softened at a much more gradual and resistant pace making it less competitive each time U.S and European futures markets were sold off.

From the end of January to the end of May, the AUD had fallen 6 cents against the USD in effect bolstering local domestic Wheat prices at a time when Northern hemisphere futures markets were declining. The USD v the Euro in contrast (although having had fluctuations against each other from the end of Jan to the end of May) had basically ended the same period with exchange rates relatively unchanged. By the time April had rolled into May, Australian Wheat was not only having export margins squeezed but was transitioning to becoming a more expensive origin for international consumers compared to other options. The satisfactory Autumn sowing conditions were not enough to offset the growing confidence in international futures exchanges which continued to drop at a rate far exceeding local Australian domestic prices. This effectively increased the Australian “basis” against other origins resulting in a slowdown of Bulk exports making it more difficult to set up new sales for the back half of the year. From here, Australia will again come into focus with local and international traders watching closely as to how Spring plays out.

Domestic feed Barley markets have largely tracked a similar price pattern to feed Wheat.

Apart from South Australia, feed Barley exports have been somewhat limited as exporters were presented with stronger margin opportunities from Wheat. Any slight movement and independent of Wheat’s influence came from possible supply disruption from the Black Sea and the news of China’s intent to lift tariff restrictions on Australian Barley. Local markets largely responded with higher offers into the domestic market but without these events materialising local markets again settled back into tracking closer to a spread off any movements in Wheat.

In May and June as Northern East coast areas remained dry, a combination of reduced freight costs (due to the heavy reduction of trucks running to Ports) and domestic demand due to cheaper cattle in the North allowed Barley from Southern parts of NSW to price itself into Darling Downs feedlot homes. This tightened the price spread between Southern NSW homes and delivered Vic domestic markets (particularly in the more Southern areas such as Geelong/Melbourne and the Western District) with the absence of export demand in conjunction with more growers selling due to confidence in the new seasons crop and cash flow. As we round out the first half of the year, Australian Feed Barley continues to remain uncompetitive with other global origins particularly versus the biggest exporting Barley region, the Black Sea. At the time of writing, Black Sea Feed Barley represents around a AUD$70p/t discount to Australian Feed Barley.

It is important to note that Australian Feed Barley does achieve a premium over Black Sea origin due to its superior quality, but with such a disparity in price between the two, global consumers that are multi origin purchasers will have no choice but to manage their requirements without Australian Barley.

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Author

Justin Fay
Commodity Manager