Insights January 2020
Insights January 2020
- Tensions between the United States and Iran has potential to significantly impact global grain markets. Middle
Eastern countries on average account for close to 20 per cent of combined global wheat and barley imports.
- Offshore markets remain optimistic despite uncertainty caused by geopolitical tensions, reduced Russian export
estimates, and deteriorating US winter wheat crop conditions.
Australia’s winter crop production is forecast to fall 27 percent below average as very warm, dry spring conditions took their toll on yields. National wheat production is forecast to decrease 17 per cent year-on-year, significantly
impacted by a 49 per cent reduction in WA wheat production. Barley production is expected to increase 5 percent year-on-year, largely due to increased planted area and improved conditions in Victoria. The summer sorghum crop is forecast to be 78 per cent below average with estimated area planted the lowest in over 20 years, reflecting the continued drought conditions in summer
Offshore wheat markets softened temporarily due to developing tensions between the United States and Iran. Previous geopolitical friction has indicated the impact on wider markets tends to be short term, with longer term effects confined to the local region. Should conflict escalate there is potential for a significant impact on the global grain trade. Last year, Australia exported 1,616,880 tonnes of wheat and barley to Middle Eastern destinations, representing 12.2 per cent of total export volume of these commodities. Despite this, futures markets remain relatively buoyant largely due to the anticipated signing of “Phase 1” of the United States and China trade deal, though specific details are yet to be revealed.
A decline in projected Russian wheat exports, a reversal of a ban on glyphosate in Thailand, as well as an anticipated reduction in US area planted to winter wheat have been supportive to offshore wheat values.
After lacklustre grower selling and a relatively flat period between Christmas and the new year, Australian domestic prices have followed US futures higher. Prices in New South Wales and Queensland remain at enough of a premium over other states to continue to attract feed grain supplies from elsewhere in Australia, with December transhipments 15 per cent higher year on year.
Australian cereal prices are expected to remain relatively stable in the near term given the current balance between export and domestic demands, with upside of 3-5 per cent as growers are coaxed to sell to increase liquidity. Local
prices are following the lead of the global market, hence there is potential for larger swings in either direction dependent upon developments in the Middle East, Russian exportable surplus, and changes to US production estimates.
Source: Profarmer Australia