COMMODITY UPDATE
Market Observations: June

Local grain markets have been on a rollercoaster ride over the last couple of months and with minimal rain having fallen to assist with new seasons plantings, it may continue as such.

If we look back to the end of March we had both Trade and Grower selling on a level that outstripped demand. Minimal opportunities were coming from the export container market due to Australia’s uncompetitiveness versus other countries of origin; a domestic market that was still consuming harvest purchases and farmer end-users consuming silage who would normally be using grain. Fast forward two months and the supply and demand scenario has turned.

Because of the previous drop in demand grain prices eased. With this easing it made us more competitive in the export market which started to firm grain prices as a result. In addition to this, consumers were coming to an end of their harvest stock consumption so were looking to top up stocks. On the supply side the Trade was more consumed with the interest coming from the export market and this period also culminated in the timing of grain growers focusing on sowing and not grain marketing. Essentially across this two month period on the East Coast, the market fell around $30p/t and then rallied back up to similar levels.

June will be an interesting period for grain marketers and consumers alike. With Wheat sowing still occurring up until the end of May, weather conditions hadn’t been as desirable as wished. Farmers in Victoria were primarily sowing into dry conditions with soil moisture virtually non-existent. Minimal selling has occurred up to now as a result with Farmers waiting to see if crops can get established first prior to committing to selling anymore old seasons grain into the market. With container exporters and domestic consumers still actively buying, the absence of any real selling in the market is effectively placing a floor under prices and underpinning the immediate buoyant pricing outlook. The demand for grains, both domestically and internationally, will influence production decisions and prices. Decisions around planting Canola for example will largely be determined by the amount of rain already received and longer term forecasts. Being an expensive crop to grow and considered riskier than cereals, depending on rotational requirements Farmers may make the decision to plant a slightly later sowing crop such as Barley if the conditions don’t look suitable. With the sowing window closing at the end of May for most regions, crop forecasts for various commodities could be shaped and shifted quite a lot. Pulses (again depending on specific rotational programs) could largely be affected by attractive prices when determining the amount of hectares sown. Export demand is strong particularly for Lentils, Chickpeas and Lupins due to easing of tariff protection in traditional sub-continent markets.

If there’s an oversupply of grain compared to demand, naturally prices tend to decrease. This surplus can occur due to favorable weather conditions leading to bumper harvests, increased productivity, or reduced demand from major consumers like livestock producers or food processors. With more grain available than needed, sellers may lower prices to move their surplus stock. Conversely, if there’s a shortage of grain relative to demand, prices tend to increase. Imbalances in supply and demand for grain over the last couple of months has lead to fluctuations in pricing, with prices rising when demand exceeds supply and falling when supply surpasses demand. Various factors, including weather conditions, market speculation, government policies (such as we saw with the increase in Victorian pulse prices due to India cutting import tariffs), and global economic trends, can exacerbate these imbalances and impact grain prices. While long range weather forecasts are deemed to be promising for Victorian growers, there will still be a reluctance to sell old crop commodities in the short term until we receive a decent break of rain and gain more confidence with an established crop.

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Author

Justin Fay
Commodity Manager