COMMODITY UPDATE
Market Observations: June

At the time of writing this, I have just arrived home from an inspiring two-day conference with fellow industry colleagues from the Victorian Stockfeed and Grains industries.

The conference discussions are always proactive, intensely based on how we can improve on issues such as safety in the workplace, marketing for our farmers, logistics and the ever-present topic of weather. Another strong theme from the conference centered around recruitment in agriculture and the shortage of both skilled and unskilled staff across the broader sector.

The event, based in Yarrawonga meant participants can come together from varying regions and share insights into how the cropping season has started in their respective communities. Recent showers have topped up moisture profiles that have come off a good base due to the wet summer. Areas in the Goulburn Valley that had extensive rain in late spring and summer are presenting crops that appear to be well established and on track in the early stage of the cycle, making the most of a strong moisture profile. Over the border and into the Southern Riverina, crops don’t appear to be as far along in the cycle with a good portion yet to emerge. Late showers in May have been welcomed and will help establish the crop and link up with the moisture retention still present at varying depths. Farmers in the Mallee have been hopeful of 10-15 mills to top off their moisture profiles and the crop appears to have emerged and be off to a good start. Western district growers have been inundated with showers across the sowing season. Farmers have faced issues with getting onto paddocks in some areas particularly in the heavier clay country. The Wimmera overall appears to have had a satisfactory sowing period with showers to assist establishment without the accessibility issues faced in the South.

With farmers all but finishing the task of sowing, their attention turns to the potential for more marketing. The domestic consumer continues with the consistency of grain procurement while the opportunities in the bulk export market have thinned. Exporting of grain and pulses in containers continues, but bulk export has come under pressure due to falling futures markets in the U.S and Europe on the back of positive yield forecasts on cereals for those regions. The exception to this is the underwhelming conditions on the U.S plains which has resulted in a strong price for HRW quality, grown in that region and reflected on the Kansas futures exchange. The bulk volume in the U.S is typically SRW quality which is traded on the Chicago exchange. As harvest commences in the U.S, the Chicago futures price has continued to drop throughout May as the crops prospects become better known and more assured. High protein grades in the U.S such as DNS are traded on the Minneapolis futures exchange. This quality normally trades at a price premium over HRW and SRW grades but in recent weeks has traded around parity levels with HRW and even trading below at some stages. This gives us an understanding as to how the various grade spreads in Australia might be affected by the volumes and price values being traded on the prime U.S exchanges.

That is, confidence in supply exists for both lower and high protein Wheat with conjecture around protein prices that would fall in the mid-range of the scale.

Our local futures market (transacted through the ASX) , APW1 is the grade attached to the contract on the East Coast. APW1 on ASX is comparable in world trade with SRW on CME – the Chicago exchange. Comparatively, at the time of writing APW1 represents around a $40p/t premium to its American counterpart. This is the prime reason for the quelling of local exports as international consumers switch to other origins for supply; particularly for U.S grain which like Australian grain is a quality product but at a significantly better price. With Wheat being the prime soft commodity staple across the world, naturally all sellers and consumers are keeping a close watch on what will happen in the Black Sea and the possibility of supply restrictions to the global market. For now, we understand the drivers behind the soft futures markets with good global production, full global stocks and accessibility, but remove just one of those facets and the outlook may turn again. Australias 2023 crop journey has only just begun but off to a positive start. Australian prices as mentioned are well over international levels for comparable qualities at the moment. The opportunity is slipping away to execute more bulk export tonnes into international markets as we have done for the last 3 years. But the season has a long way to go; invariably global dynamics will continue to shift and market mechanics will respond accordingly.

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Author

Justin Fay
Commodity Manager