Markets likely to stay volatile

Markets likely to stay volatile

Cropping
Domestic markets were gradually trending stronger last week.

Domestic markets were gradually trending stronger last week.

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It is safe to say there was a lot of uncertainty in local and global markets last week.

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It is safe to say there was a lot of uncertainty in local and global markets last week, particularly with the slow planting progress in the United States mid-west after a deluge of rain over the past few weeks.

This rain has led to a significant rally in corn, understandably too, with the planting progress sitting almost 30 per cent behind the five year planting average at this time of year.

This would not be too concerning but for the fact the US farmer is almost out of time to plant any more corn acres.

As is usually the case when the corn market goes on a run, wheat tends to follow the lead.

Wheat has been trading consistently over 500 US cents a bushel for the past fortnight and there are a couple key reasons why wheat has followed corn over the past three to four weeks.

The first, is there are suggestions a decline in US corn production will see demand shift away from corn and move to Soft Red Winter wheat.

The second, are quality concerns for winter wheat acres.

Although the crop that was rated good-to-excellent increased last week 3pc to 64pc, there are still concerns about the increased disease risk after the torrent of rain in recent weeks.

If you add all of these weather worries to concerns of dryness through the Black Sea, (Russia and Ukraine) and Canada, and the recent US tariffs imposed against Mexico, it's clear we are set for some volatility.

And we haven't even touched on Australian conditions.

Back here on home soil, we have seen a magic start across Victoria and southern NSW, that was triggered after heavy rainfall in May.

However, this is contrasted harshly against central/northern NSW, and southern Queensland.

These areas have had a below average start to the cropping season.

The poor start, added to below average stored soil moisture, paints an ugly picture for the east coast, and Rabobank last week is already tipping the Aussie wheat crop at 18.4 million tonne this year, down 13 per cent on the five year average.

The saving grace could be the rain received last week across the Western Australian cropping belt.

This rain was much later than the WA farmer had hoped, and although crops will likely be germinating in mid-June (placing a cap on yield potential), they are very excited to get the break they needed.

Domestic markets were gradually trending stronger with dry conditions in the north and the uncertainty in WA.

However now the WA farmer has had a general break, albeit later than usual, the market will take the chance to ease pricing until the next round of weather worries hits.

New crop pricing in the Newcastle zone was trading in the $345-365 a tonne range last week, but imagine as rain continues to fall through the south and west, and the trade and consumer become more confident that they will have a crop to buy, we will see values trend lower.

The flip side to this if rain doesn't continue in WA and we don't see any more crop planted in Queensland and northern NSW, there could be some fireworks for the domestic market ahead.

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