Location of grain is key
AS DRY weather continues to reduce the size of the northern New South Wales and southern Queensland cereal crops, domestic demand in that part of the world remains buoyant.
This has pushed local feed grain values higher in recent months and extended the drawing arc for feed grains as far south as Victoria.
The Queensland feed grain market is predominantly made up of beef, poultry and pork producers spread around Brisbane and across the Darling Downs.
Most growers who regularly supply grain into these consumers will be facing significantly reduced production compared to last season.
This has many thinking that values will continue to rally due to lack of supply.
The reality is, domestic winter crop production in the eastern states of Australia will be more than enough to satisfy domestic demand along the entire eastern seaboard. That is before the record carry-in of more than 11 million metric tonnes (itself more than enough to satisfy domestic feed grain demand) is added to the equation.
However it is the location of the required grain relative to key demand points and the propensity of the grower to sell that will present the biggest challenges over the ensuing 12 months.
We know that carry-in stocks in Western Australia and South Australia are relatively low after a huge export program this year.
We also know that much of last year’s record Queensland
harvest has already been consumed or exported.
Therefore, most of the aforementioned carry-in must reside in Victoria and NSW.
The pace of exports over the last year has cleared a majority of stocks from the bulk handling system in those states. This means the grower is still holding a significant proportion of last year’s production in a variety of on-farm storage systems.
Values in the northern feed grain markets have rallied significantly, relative to the
Victorian and SA markets.
This is basically a reflection of the cost of freighting grain from the south to the north, where demand is high but supply is scarce.
The values are now at, or very close, to import parity.
If the spread between values in Victoria and Brisbane exceed the cost of shipping from SA (the cheapest origin) plus redelivery to Brisbane consumers, then the market will be encouraged to take the cheaper shipping alternative.
At this point, the price of grain in Brisbane and across the Darling Downs becomes a function of prices in SA.
If SA values change then prices in the north will move accordingly. This effectively places a cap on the value of grain in southern Queensland.
The interesting question here is: “Should the long holder of old crop grain in NSW (or Victoria to a lesser degree) allow that to happen at this point in the season?”
If a significant proportion of the carry-in is being held
on-farm east of the alternate origin (SA) and new crop harvest about to commence, then “no” is definitely the answer.
With the Brisbane and Darling Downs markets at or near import parity, sellers should not expect future values to outperform the southern markets.
Growers still holding old crop grain on-farm (or in the system for that matter) should be looking to sell into this rally to maximise returns in a poor production year.