Shrinking hope yields a rally

Prospects for the NSW grain harvest are declining by the day pushing prices up as the market responds


Markets
Rain came too late for many winter crops and Soaring fodder prices has seen many east coast farmers choose to cut wheat, barley and canola crops for hay.

Rain came too late for many winter crops and Soaring fodder prices has seen many east coast farmers choose to cut wheat, barley and canola crops for hay.

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Shrinking expectations for Australia’s 2018 winter grain harvest appears to be the catalyst for last week’s five per cent rally in Australian grain prices.

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Wheat and barley prices were sharply higher last week as expectations for the upcoming harvest tumble. ASX wheat futures for a January delivery ended last week $20 higher at $445 a tonne while barley jumped $38 to $438 a tonne. 

Strength in grain futures were reflective of the underlying cash prices. APW multigrade wheat into Newcastle and Port Kembla jumped by $40 to more than $470 to $475 port. Similar increases across all states were seen in wheat and barley. Canola was $13 higher at $640 delivered Newcastle.

Shrinking expectations for Australia’s 2018 winter grain harvest appears to be the catalyst for last week’s five per cent rally in Australian grain prices. 

Stock feeders, hoping for cooling prices, emerged as buyers rather than risk even higher prices at harvest.

Significantly below average September rainfall, and widespread frosts have seen expectations for Australia’s grain harvest continue to erode in recent weeks. ABARES, Australia’s government crop forecaster, estimated the Australian wheat crop at 19.1 million tonnes in mid-September, but most now see this as optimistic. 

Significantly below average September rainfall, and widespread frosts has seen expectations for Australia’s grain harvest continue to erode in recent weeks

Prospects for the NSW grain harvest are declining by the day. Hopes of September rain have all but vanished with most areas recording less than 50 per cent of the monthly normal. ABARES pegged the NSW wheat crop at 2.5 million tonnes and barley at 760,000 tonnes. 

Most of the state’s farmers have already written off the 2018 season except for the odd irrigated crop. Crops have either perished or don’t warrant harvesting. 

The southern slopes, one of the only areas that still intends to harvest crops, are losing yield by the day. These areas will still benefit from October rain but yield potential is slipping. Farmers in the Young and Harden areas have started to cut canola crops for hay and are contemplating the same for cereal crops. 

Soaring fodder prices has seen many east coast farmers choose to cut wheat, barley and canola crops for hay instead of harvesting them for grain. Some areas in southern NSW and Victoria have seen as much as a quarter of the cereal crops cut this way.

After a promising start to the season, Western Australia’s production estimates are also in retreat following widespread frosts and virtually no September rain. Above average winter rainfall in the West had forecasters tipping a near record wheat crop of more than 10 million tonnes, but the unfavourable early spring wheat may see the final crop slip below 9 million tonnes.

Warmer temperatures are also eroding yield prospects in the West with daytime temperatures already holding in the low 30’s in the northern areas. 

Increasingly, the focus of the Western Australian crop is shipping wheat and barley to the east coast rather than its Southeast Asian customers. More than three-quarters of a million tonnes of grain has been shipped into Queensland and NSW in the past three months and this pattern is expected to continue indefinitely. 

Further general yield declines are now seen as unavoidable with the forecasts showing no sign of rain through to early October. Many traders are now pegging the Australian wheat crop at 17 to 18 million tonnes, with some saying it will be less than 17 million tonnes when harvest commences.

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