WELL what a start to the new year.
Trade talks between China are still tense, the continuing US Government shut down over Trump’s wall, more confusion and uncertainty around Brexit and heatwave conditions over much of the eastern seaboard during the past week.
It has certainly been an action packed three weeks.
One thing that has not changed though is the slow downward trend of the east coast wheat market.
- A waiting game to trade
- Chickpea and lentil markets remain volatile and tied to India in 2019
- Grain production takes a dive
Since the start of the year the market has dropped $10 a tonne back to $452/t early this week in the Port Kembla zone.
This has largely been due to contracts being filled, the availability of grain from Western Australia and parts of Victoria along with local grower selling.
Chicago Board of Trade wheat futures have not been very supportive either and since January 1, have traded within a range of US20 cents a bushel from highs to lows.
So where to from here we ask?
It is a known fact that grain is in limited supply on the east coast and we know that there is a lot of resistance from buyers in $480/t plus area for grain.
Also, generally speaking January is a slow month in the market picking up from mid-February onwards.
However, things may change this year with boats arriving from the west that will supply most end users for a period of time.
Once this grain starts to run out, the end users will start to use their own stocks, live hand to mouth to carry them through to another series of boats from Western Australia and then the process will start again.
So maybe the prices we are seeing today could be the same or drop further away come mid to late March depending on east coast rainfall and the size of the sorghum crop.
To add further insult, the US is sitting on massive stocks and a potential large harvest in Argentina.
The caveat to the above is while the US is sitting on large stocks, supply from other origins is drying up.
Russia, which has been supplying the bulk of the global wheat flow for some time has seen values slowly climbing for the last month or so. Demand should, in time, shift to the US which will in turn support global prices.
This will likely have an effect on local markets in Australia and could present advantageous pricing opportunities.
At the end of the day, we are not certain what is going to happen over the next two to three months, but we can start to see what the bigger picture will look like.
So, in my mind, the grower has three options: to take the money now and run; wait until early to mid-April and hope for world volatility; or look for risk management tools that allow you to capitalise on today’s price while letting you capture any upside in the market.
To quote Forrest Gump, “grain prices are like a box of chocolates you never quite know what you’re going to get”.