Out­look on agri­cul­ture

Warwick Daily News - South West Queensland Rural Weekly - - Rural Weekly - Thomas Kim COFCO Aus­tralia

IN fish­ing, the drug, or “lure” if you will, lies in “reel­ing in the big one”. And, for those of you lucky enough to have hooked that prized fighter on your post-har­vest fish­ing trip to the coast, would right­fully still be rem­i­nisc­ing about that eu­phoric sen­sa­tion.

A sur­prise call from a Mel­bourne-based grain mar­keter quickly re­minds you that it’s that time again, time to check the planter is in good or­der, and ready to kick off the new win­ter crop sea­son.

As al­ways, there are still more ques­tions than an­swers when fac­ing the full stretch of a new crop cam­paign. Let’s raise a few of key points we think most per­ti­nent to their out­look.

WHEAT

Much of the poor US crop con­di­tion is priced into the mar­ket, which means the mar­ket will need to look for crop prob­lems in the Black Sea or Europe for fur­ther up­side. Aus­tralian wheat prices will ben­e­fit most from a Black Sea pro­duc­tion is­sue where new crop pro­duc­tion con­sen­sus is at 75MMt ver­sus 85MMt this year. Given that wheat has pro­gressed through win­ter un­scathed, and with good snow cover, the level of concern is low for the mo­ment.

Price rel­a­tiv­ity for new crop against the Black Sea, is not nec­es­sar­ily a driv­ing fac­tor this far out, given the crit­i­cal weather for both the Black Sea and Aus­tralia is still to come. It is too early for Asian con­sumers to en­gage for 2019 de­mand, but as a guide, APW in Western and South Aus­tralia is at a USD $10 pre­mium to $12.5 Rus­sia on CFR ba­sis to Asia. Tak­ing into ac­count, the su­pe­rior Aussie qual­ity and mois­ture level, the pre­mium would be nar­rower, which shows Aus­tralia is rea­son­ably priced.

On the is­sue of es­ca­lat­ing US-China tar­iffs, we won’t delve into the guess­ing game of what may tran­spire, es­pe­cially given the mag­ni­tude and in­tri­ca­cies of the global flows in­volv­ing two of the most in­flu­en­tial economies in the world. We will fin­ish by say­ing that the ex­cep­tional global eco­nomic growth ex­pe­ri­enced through the last half-cen­tury, is at­trib­ut­able to in­creased global trade and re­duc­tion of pro­tec­tion­ism.

A re­ver­sal of this progress will gen­er­ate ca­su­al­ties on both sides of the Pa­cific, hin­der­ing eco­nomic growth prospects for all those in­volved, both di­rectly and in­di­rectly.

The re­cent pol­i­tics though may end up be­ing merely a bad hair­cut. For Aus­tralian wheat farm­ers, this is­sue is more likely a boon in the short term, (with­out a sig­nif­i­cant shift in global SnD), on the back of re­duced com­pet­ing ori­gin. In the long run, how­ever, it won’t do any good for most of mar­ket par­tic­i­pants.

BAR­LEY

The talk around town is how many acres will swing into bar­ley, es­pe­cially given that prices have been rel­a­tively high this sea­son, thanks to con­sis­tent Chi­nese de­mand. It’s a ques­tion that is not only for Aus­tralia but all around the globe. We ex­pect to see Chi­nese de­mand con­tinue to flow at new crop price lev­els, of which, are heav­ily in­verted across many ori­gins. Sub­se­quently, we an­tic­i­pate good un­der­ly­ing sup­port in new crop prices. Po­lit­i­cal risk is also ex­treme for bar­ley. It is rel­a­tively im­mune on the sur­face, how­ever amongst Chi­nese tar­iff is­sues, pol­icy on do­mes­tic corn will need to be mon­i­tored with care. Fur­ther im­ple­men­ta­tion of the pro­tec­tion­ist pol­icy in­creases the like­li­hood of China be­ing able to for­tify its lo­cal grain and oilseed sup­ply through higher sub­si­dies to grow­ers.

With in­creased pro­duc­tion, this may mean lower do­mes­tic corn prices, and even­tu­ally, this may trans­late to lower bar­ley prices for Aus­tralia. CANOLA

De­spite the an­nounce­ment of a planned 25 per cent tar­iff on US Soy­beans, the Aus­tralian and Euro­pean Canola mar­kets have re­mained largely un­moved. This state­ment caught a few oilseed traders by sur­prise, given the news was an­tic­i­pated, and mar­kets moved quickly to reprice spe­cific ori­gins to al­le­vi­ate the ex­pected change in trade flows. As a re­sult, soy­bean ba­sis in Brazil firmed in­stantly given it will be the ma­jor sub­sti­tute.

CHICK­PEAS

Hav­ing seen prices al­most double what farm­ers are cur­rently see­ing for new crop chick­peas, the ra­tio­nal thing to do is switch ex­cess chick­pea acres to ce­re­als. Even with the switch, an aver­age yield will get na­tional pro­duc­tion close to 1MMT.

With In­dian ex­ports com­ing to an abrupt halt, it will mean that even 1MMt will gen­er­ate a loose SnD. Also, the first of the mon­soon fore­cast shows a mi­nor skew to­wards above aver­age rain­fall, which trans­lates into bet­ter new crop prospects for In­dia.

In turn, Aus­tralia can ex­pect ex­tended tar­iffs on chick­peas. And, while chick­peas have had a cou­ple of years in the spot­light, things are point­ing to a sub­dued sea­son.

PHOTO: FILE

GRAIN CROPS: Chick­peas and wheat grow­ing side by side.

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