Know when to fold them

Win­ter grain crops strug­gle for mois­ture

Warwick Daily News - South West Queensland Rural Weekly - - The Mulberry Project - PETER McMEEKIN

NOTH­ING like a bit of dry weather and di­min­ish­ing win­ter crop pro­duc­tion fore­casts to get the grain mar­ket a lit­tle hot un­der the col­lar. Wheat and bar­ley val­ues ral­lied across all port zones last week and the mar­ket ap­pears to have moved into a sup­ply-driven panic.

We know that the Aus­tralian win­ter crop has been strug­gling for mois­ture in most re­gions all year, the pri­mary ex­cep­tions be­ing Vic­to­ria and the Esper­ance zone in Western Aus­tralia. Sow­ing was de­layed or sim­ply didn’t even­tu­ate in some dis­tricts and emer­gence was poor in oth­ers. Nor­mal root zone de­vel­op­ment suf­fered as a con­se­quence.

Au­gust fi­nally brought some much needed pre­cip­i­ta­tion across the south­ern reaches of the Aus­tralian crop­ping zone. This bought a breath of new life and op­ti­mism to do­mes­tic crop prospects. Long range fore­casts turned neu­tral and it was game on.

Mean­while, in north­ern New South Wales and south­ern Queens­land the mois­ture from Cy­clone Deb­bie was long gone. Grow­ers, con­sumers and the trade had one eye on the with­er­ing crop and the other on the mul­ti­tude of 15-day fore­casts that con­stantly promised a lot but con­sis­tently failed to de­liver.

We are now in the fourth week of Septem­ber, the crop has rapidly moved into the crit­i­cal re­pro­duc­tion phase and mois­ture re­quire­ments are peak­ing. Tem­per­a­tures are in­creas­ing, set­ting Septem­ber records in many lo­ca­tions, and evap­o­tran­spi­ra­tion is high. There is one huge prob­lem here! Al­most the en­tire Aus­tralian win­ter crop­ping zone has had be­low aver­age rain­fall month-to-date. De­mand for mois­ture is high but sup­ply has been low.

Wheat and bar­ley can strug­gle through the win­ter months on very lit­tle mois­ture, but Septem­ber is the month when crops are made, or lost. The rapidly de­creas­ing pro­duc­tion out­look for south­ern Queens­land and north­ern New South Wales pushed the Queens­land feed grain mar­ket to, or close to, im­port par­ity at least a week ago. In the sub­se­quent days that mar­ket has con­tin­ued to trade higher bring­ing the south­ern and western port zone val­ues along for the ride.

Let’s call cur­rent eastern Aus­tralian wheat and bar­ley pro­duc­tion 13 mil­lion met­ric tonne (MMT) and 5MMT re­spec­tively (in­clud­ing South Aus­tralia). Carry-in for the same com­modi­ties in the same part of the coun­try will be close to 10MMT, maybe lower, de­pend­ing on the pace of ex­ports in the fi­nal two months (Au­gust and Septem­ber) of the 2016/17 mar­ket­ing sea­son.

That is more than enough sup­ply to sat­isfy eastern state do­mes­tic de­mand. Aus­tralia will have to ex­port ce­re­als from South Aus­tralia, Vic­to­ria and pos­si­bly even New South Wales in the 2017/18 sea­son. How­ever, the heat in the north­ern feed mar­ket has pulled South Aus­tralian and Victorian val­ues higher and those ori­gins are no longer com­pet­i­tive into ex­port path­ways. South Aus­tralian and Victorian APW wheat val­ues cur­rently sit around US$15 and US$30 above ex­port par­ity re­spec­tively.

The Aus­tralian win­ter ce­real mar­kets seem to be run­ning its own game at the mo­ment, be­ing driven by fear (or un­re­al­is­tic op­ti­mism) rather than ra­tio­nal anal­y­sis. It ap­pears to be a tad over­heated and runs the risk of ra­tioning de­mand when there will still be an ex­portable sur­plus.

This has all hap­pened be­fore. The lack of new crop grower selling as pro­duc­tion es­ti­mates de­crease. The grower hold­ing old crop grain as a hedge against new crop pro­duc­tion is­sues. The consumer want­ing to cover their short but wait­ing for a mar­ket cor­rec­tion.

Some­thing has to give! Will in­ter­na­tional mar­kets rally? Maybe the Aus­tralian dol­lar falls. Per­haps har­vest pres­sure brings a cor­rec­tion. Pos­si­bly a cargo or two from South Aus­tralia to Bris­bane hit the stem. Or will the dis­crep­ancy con­tinue un­til har­vest is com­pleted and pro­duc­tion is locked in?

This sea­son’s grain mar­ket is just like play­ing a game of poker.

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