COMMODITY UPDATE
Market Observations: May
After a relatively quiet couple of months with grain markets shifting lower, April certainly swung things around with a big swing to the upside across most major commodities. Ongoing geopolitical issues across the Black Sea region and the Middle East continue to keep the market on edge. While the markets in general have removed a significant amount of the risk around these regions, we continue to get reminders that increasing tensions in either of these conflict zones would have the potential to send markets up across the board.
In recent weeks we have been in the midst of an international weather market with wheat futures markets leading the charge jumping due to dryness in key production zones of Southern Russia and the US Southern Plains. These weather concerns led to a short-covering rally by the funds which saw Chicago and Kansas US futures markets jump approximately 10% in a week in late April. Given the sizeable short positions held by the managed money sector in these futures markets, the market remains susceptible to these short covering rallies when adverse news comes hits the market. The Aussie dollar also continued to move lower which helped pushed Australia wheat pricing higher, this also heightens after any international turmoil.
Given recent conditions on the east coast there are still expectations of a very strong crop for the upcoming season. Recent forecasts are calling for increase planting areas and one of the largest plants on record given conditions in north west NSW. Planting across the country continues to make progress with most regions now underway. NSW and southern Queensland have the pick of the conditions with most growers planting into moisture although those in the northern zones are also continuing to harvest summer crops. Western Australia and South Australia remain dry as most growers are planting dry with the hope of rains in coming weeks to germinate and get the crop away.
Domestic wheat and barley markets have continued to be very thinly traded and stronger in recent weeks led by the strength in international markets. They remain supported domestically due to the lack of sellers in the market. Grower selling is minimal as growers across the country are focused on winter crop planting which will continue over the next month. Strong demand continues in the South West with export accumulation into Portland and Geelong ongoing.
The spread between wheat and barley has continued to narrow over the last month with premiums even appearing on certain days and in certain zones for barley. With a forecast tighter carryout for barley it’s expected that this spread will remain narrow especially with strong barley demand expected to continue from the Northern feed markets on the east coast.
Maize harvest continues with reports of strong yields and good quality with the spread to wheat continuing to narrow. Plenty of producers have been looking for homes to deliver with demand somewhat slow from the consumer which is expected to continue to pick up given the price relativities to wheat.
Lupin pricing has continued to jump higher on the back of strong container demand into the export market and slow grower selling as many growers remain absent from the market. These prices have increased significantly in the last month and are becoming increasingly difficult to buy. Exporters have been willing to pay premiums to get the stock which has flowed over to the domestic markets.
By-products like almond hulls continue to have strong demand which has seen pricing up in recent weeks. Strong demand drawing both to the northern feed homes along with the Vic feed homes has seen pricing up over the last month.
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Author
Campbell Sutherland
Commodity Trader
