Fact of the Day – The number of tractors on farms exceeds the number of horses and mules for the first time on this day in 1954. Interesting how now sixty odd years later we are on the brink of automated tractors and we can watch the technological advancements before our eyes throughout the agricultural industry.
As spring is only round the corner, we are beginning to remember the summer that has just been through this weeks raised temperatures. With the mercury reaching the high twenties and low thirties throughout the North West and strong winds adding the extra bite, it has instilled a sense of, is winter over already?, and is this the start of another brutal summer ahead? As the markets have slowly adjusted to the blindsiding that was the world’s agricultural supply and demand estimates last week (WASDE) we see welcome rain across the U.S with more set to fall which has arrived nicely to coincide with the preparation of growers planting their winter crops.
As we have touched on over the past few months, with the current weather conditions and what is forecasted, the demand will continue across most areas of the grain markets. New crop feed Wheat continues its low volatility by staying firm at $315 for January delivery in to the Darling Downs, whereas current crop sits at $305. As of late there has been continued interest in F1 Barley across the region seeing bids of $310 Downs and $300 Texas delivered. Sorghum this week is bidding $290 in to the Downs, though there is also demand for Ex-Farm options as well depending location for August and September – buyers call.
Chickpeas… like we stated last week, their state of limbo continues in a sense, though this week we are seeing a lot more interest in regards pricing ideas for both old and new crop and the periods that are offered for delivery. Not trying to plagiarise from our comments last week, though we do still firmly believe that the remainder of August is where we will learn a lot about what to expect with yields and demand across the market. Though now, as the sub-continent has become more alert to our current weather conditions this has shown a positive rally as of late to influence prices. For some buyers who are facing a short in product will also influence a spike in current prices in which should show growers that there is room for improvement to where prices currently sit, so holding off on new crop for a little longer couldn’t do any harm. Chickpeas for old crop have jumped nicely to $900 delivered Brisbane Port and $860 delivered Narrabri August/September buyers call. New crop for 17/18 has put out a lot more activity for pricing seeing bids at $800 delivered Oct/Nov Narrabri and $825 Downs delivered.
Faba Beans have been a bit quieter as of late when compared to a fortnight ago, with buyers scooping up large tonnages across the region, interest seems to now be more focussed towards September delivery – buyers call. Prices hang on to stay firm at the $250-55 ex-Farm conditional on location and quality. Export bids have re-emerged at $260 delivered Narrabri for No.1 and 2, which keeps domestic demand competitive at $250 ex-farm for No.3’s with less quality risk. We believe there is value in holding off from new crop sales, but looking at making old crop sales if you have protein wheat. Faba beans are a sell at $250 ex-farm due to illiquidity of market and with new crop around the corner. Hold chickpeas for a while longer, and sell old crop Sorghum and Barley. We say this by working on the returns you have earned by holding on, you might want to consider going to the bank with some of these gains, and not playing Russian roulette with the weather – which of course could pay off, but is a higher risk. We know there are some that are saying sell everything at these values, but we challenge you to ask yourself what is their motivation for you to sell?
The market has continued to adapt to the figures from the WASDE as well in regards to Cotton production. Bids across the board for Cotton are at $485/bale for 2018 cotton and 2019 cotton is ten dollars below at around the $475 mark. We still see value for 2018 season cotton at $500 or better (for irrigated) depending on your existing sales program. The Aussie dollar dropped by around a quarter of a cent to open today at $0.783 (at time of writing), the weakening dollar has definitely played a role in how commodity pricing has been shaped over the past fortnight.
The first week of August brought forward some welcome rain across Northern New South Wales (NNSW). With the Narrabri area receiving a comforting 20mm and a little less west of town there is still a large urgency for more as a the most recent fall will not be as beneficial without more of a follow up rain event. The weather brought a nice change to struggling crops and dusted the North West late Thursday evening then dispersed that Friday morning. From an international point of view the news coming out of Europe is conveying that the Wheat is above yield expectancy and in the US the spring Wheat harvest is more than underway which is a positive on both fronts.
As we look towards the new year of 2018, which as unsettling as it is, it is only just over four months away meaning harvest is even closer. With feed Wheat for delivery January 2018 Darling Downs coming off a fraction as of late, prices are at $320 as old/current crop stands firm at five dollars below at $315. Feed Barley has had a consistent fortnight with upholding its bids of $315 as Sorghum trails closely behind at $295 for August and September delivery Downs. Chickpeas… really not too much to say, if you have been following my comments over the past month or so, you would have noticed the slow decrease across the market which has left Chickpeas in a state of limbo. As touched on last week, with Australian Peas landing on the shores of India currently, the demand is quiet and supply yet to be stoked up again. August from my perspective will be interesting to watch, as we slowly creep towards September we are gaining more information on the yields to be expected as each day and weather event passes. Currently Chickpeas for old crop sit at $830 delivered Brisbane Port, New crop pricing is becoming a little more prevalent with bids at $700 delivered Oct/Nov Narrabri and $720 Downs delivered. Faba Beans, with a large demand domestically over the past month has grasped a large quantity of remaining beans. Prices continue to stay firm at the $250-55 Ex-Farm depending location for the period of August and September.
Nearest Terminal Port (NTP) Prices have continued their run with not showing much fluctuation and keeping their hold as of recent times. APW multi grade new crop for 2017/18 sits at bids of $310 Newcastle. Queensland’s northern ports of Gladstone and Mackay stay just off that mark behind Newcastle displaying $295 and Brisbane at the high of $330. Gladstone and Mackay this week have contracted and are displaying numbers at $760 for new crop Chickpeas for October/November delivery period.
With Cotton having a slight rally this week there has been more interest in the market from a buyer’s perspective, especially for 2018 crop. Bids across the panel for Cotton are at $500/bale for 2018 cotton and 2019 cotton is still somewhat sound at $485/bale. The Aussie dollar has come back since its spike lately and today stands just under the $0.79 level.
The wheat market has been largely influenced by dry weather conditions in Europe, Canada, North America and Australia. However, we must keep this in perspective that globally, wheat stocks are still comfortable, and it’s been Minneapolis Spring wheat that has led the charge in wheat prices, coupled with a hot and largely dry summer in the U.S which has also supported corn and soybeans. So it’s been the combination of weather on all three crops that has created the recent rally in prices. Whilst the market will continue to monitor corn and soybean conditions in this critical development period in the U.S, nearby forecasts for these areas are more favourable for crop development with cooler temperatures and some rain relief. This means that if weather improves, the heat will continue to come out of the American grain and oilseed markets which will effect Australian local values.
So what does this mean? It really means that if we could predict the weather (which of course we can’t) we could predict the price. But more importantly, if weather wasn’t the issue, grain prices would be much lower today. Therefore, we don’t advocate basing marketing decisions on the weather alone because that’s not a decision, it’s a punt! More important factors are managing ROI today verse production risk. Ones things more certain and that is protein wheat for the coming season will be sort after by both domestic millers and exporters. Therefore, we need to consider the following;
1. Its largely been protein/spring wheat in North America that has driven a protein premium in the market & a dry weather market in Australia that has also driven our domestic market higher. Normally in an Australian drought we see ‘wheat become wheat’ such as feed wheat is priced the same as protein wheat. This year a premium is present for protein.
2. If weather conditions in the U.S improve and Australia remains dry, wheat futures will weaken, but local basis will firm, keeping AUD/tonne prices supported. The elephant in the room is the AUD/USD. At $0.80, this is certainly taking the shine off AUD values and making Australian exports less competitive. On the positive side though, a weaker USD is also supportive to U.S exports and therefore U.S denominated futures markets. At the Australian Cotton Collective in Griffith this week, NAB forecast the AUD at $0.70 by the end of the year. They admitted that their forecast was well out & not likely – so at the end of the day no one knows what the dollar will do, so we must take this out of the decision making process.
3. Domestic demand remains firm out of the feed grain sector, therefore, feed lots and millers will need to prevent a tight supply of grain in NSW & QLD from leaving the country. However, with the dry conditions (assuming they prevail based off BOM forecasts), NNSW and SQLD should produce more traditional higher protein wheat. Currently the spread between ASW1 & APH2 wheat delivered Darling Downs is $50/mt. This is where we think we could see a “double whammy” where the domestic market is forced higher as they have to pay an inflated basis (domestic weather premium + protein premium) to buy this wheat away from the export market. So whether you produce low protein or high protein wheat this year, it will be valuable assuming it remains dry.
4. Chickpeas are experiencing a “standoff” between buyers and sellers at the moment. Australian supplies are arriving in the sub-continent as we write this, so demand is subdued. At the same time, Australian producers are experiencing a difficult growing season with a mild and dry winter to date, causing production uncertainty and therefore little selling appetite. We also think Pulse Australia’s production forecast of over 1million tonnes is extremely optimistic. We expect demand to return later in the year around September and the crop prospects will be clearer also, which will allow for greater price transparency.
What to do?
· At the risk of sitting on the fence, unless you have production certainty, we would be sitting on our hands.
· Wheat and barley to be stored on farm were possible to take advantage of flexibility with domestic and export container market.
· Based on conditions closer to harvest, we recommend a more staggered marketing program if the weather is still dry like the selling of smaller parcels every 1 to 2 months.
· If you have production certainty, you would need to have confidence on your quality to know what to sell as I don’t believe multi grade contracts offer value in grade spreads today, unless you were confident of producing APW1 only?
· If you were confident of producing APW1 and were going to deliver to GrainCorp, you could look at taking some cover by offering at $290 to $300 from Narrabri to Darling Downs sites and $280 in central QLD sites.
· If you think you will produce protein wheat, you can’t really sell fixed grade today, so you need to sit as the risks of getting this wrong could be huge.
· Barley is the same for wheat in terms of the drivers domestically. If you were certain of production, again you could sell fixed grade, or look at a multi grade option around $320 delivered Darling Downs for January 2018.
· Durum is certainly a hold for the time being. We usually don’t get durum liquidity until September/October when the northern hemisphere crop is known. Currently there is tight domestic supply & production concerns in Canada & I expect strong domestic & export interest this harvest.
· Chickpeas are a hold due to the potential price swings that can be experienced. Due to recent seasonal pricing being well above current levels and production uncertainty for Australia, we think growers should hold off pricing new crop chickpeas as risks for market difference is high.