Hand to mouth grain markets prevail

The continued dry weather has some crop forecasters reducing the Australian wheat crop, bringing it back to about a 19 million tonne crop and this could drop away even further if rain does not fall soon.

With this news coming through, the January 2020 ASX rose by more than $20 in a week, couple this with the local basis matching every move the ASX is making and it won't be long before the basis will be at the highs of earlier this year.

Once upon a time, as soon as it got dry in late winter and spring, cash pricing would go through the roof as the domestic consumer would scramble for old crop stocks and try to cover new crop shorts.

What we have seen in recent times is a consumer that is either forced to, or more comfortable, living hand to mouth.

Part of this is the changing supply chains across the east coast, and some is due to uncertainty with sheep and cattle numbers over the next six to 12-months.

We are seeing how they are starting to operate with lower than expected bids for old crop, when traditionally a rise in the market should be happening as stocks start to run out and the consumer worries about where the grain is going to come from, resulting in a price spike.

But over the last 30 days, the delivered price for wheat into the Griffith market has fallen by $15 a tonne to average now about $350 a tonne, while the farmer-to-farmer trade, depending on location, demand and availability, pricing is about $365-$385 a tonne.

Moving forward to new crop, it's anybody's guess, but you would have to think the size of the crop will be similar to last year, while the value of the crop could be lower as well as global values lower than this time last year.

Global demand for wheat is lower due to consistent year-on-year increase of production.

Russia and the Black Sea regions pricing are currently US$40-60 a tonne less than last year, which equates to roughly $70-$80 a tonne Australian dollar value.

This puts Australian grain back to a track Port Kembla pricing of about $350-$370 a tonne.

A reduced demand by the flour millers, as they have significant coverage from grain that they have had on hand, and China investigating the barley market, is still causing a hangover and there are still large amounts of surplus stock available.

If you add all this to the fact it has been an extremely challenging time over the last few years, not only for growers, but also trading companies as shown by the failure of a number of them recently and reports of significant losses, it's not a great picture.

But one thing is for sure, no one is game enough to stick their hand up at the moment to make a call.

It's all hand to mouth.