New type of ‘drawing arc’

FURTHER price strength in the Northern NSW/southern Queensland grain markets could be hard fought, with existing premiums now widening the “drawing arc” for Darling Downs feed consumers well into central west NSW and central Queensland.

Effectively, this solves the regional supply issues outlined last week – thereby placing a cap on further price strength, unless underlying fundamentals start pushing the global grain price matrix higher.

Giv‘ en the prevailing uncertainty, corn will probably be the driver of the global grain market in the short term.

Here’s the drum. With new crop 70/10 feed wheat now bid at up to A$305/MT delivered Downs, an APW multi-grade value NTP Port Kembla at about A$270/MT is priced to compete for ASW quality and lower, in many parts of the NSW central west. For example, a grower who delivers new crop ASW to Forbes would receive about A$213 delivered Graincorp Depot at current multi-grade prices (including ASW discount and location differential). When you add an out-turn fee and, say $85/MT for road-freight, onto the Darling Downs, this is on a par with the current delivered Downs market. You could run a similar equation for feed barley and also for wheat out of central Queensland sites.

The geographical extent of this “drawing arc” is virtually unprecedented – and effectively extends the supply available to this southern Queensland consumer markets into a surplus situation, despite localised regional drought concerns.

Winter crop potential in central Queensland and central west NSW still looks excellent, and there are plenty of private analysts calling for a national wheat crop of about 25 million MT.

Looking at NTP values in isolation, it is not hard to build an argument for a theoretical “maximum new crop price spread” between the Brisbane and central Queensland and/or Port Kembla port zones of about A$30/MT for like commodities. Further price strength would need to come from underlying bullish global market developments, given the rest of the east coast is looking to produce a healthy exportable surplus.

With northern hemisphere winter wheat crops largely in the bin, probably the last key unknown is corn production potential – in particular US corn output. This is particularly salient given the “speculative” shiny bum sector of the market holds an historically large net short in CME corn, largely built on earlier expectations of rebuilding US corn inventories. Given the prevailing uncertainty and large speculative interest in the market, corn will probably be the driver of the global grain market in the short term. The US corn bears are nervous as the crop is vulnerable to early frost.