Insights March 2020
Insights March 2020
- Recent rainfall has both brought some downward pressure to Australian grain prices.
- Offshore wheat futures have not been immune to the weakness that the Coronavirus outbreak has brought to financial and commodity markets.
- The Coronavirus outbreak has also seen the Australian dollar hit multi year lows against the US dollar. This has somewhat, but not fully, offset the impact of declining offshore grain futures in Australian dollar terms.
Much needed rain across many of Australia’s cropping areas, coupled with forecasts for a wetter than average autumn for many cropping regions has buoyed sentiment around this year’s winter crop.
Local values have responded lower and on the East Coast in particular, we expect prices will move closer to longer term averages if further rains deliver more certainty regarding the coming season crop.
In addition to boosting confidence, rain has assisted pasture growth and increased restocker activity in beef and sheep markets, if this continues, we expect to see reduced requirement for feed grains from this segment.
The combined prospect of improved supply in the coming season, and potential weakening of domestic demand is expected to see premiums to offshore values soften, particularly in East Coast markets.
As of the end of February, season to date Australian wheat exports were up 36 percent year-on-year, with key destinations including the Philippines, South Korea and Japan.
The more price sensitive market of Indonesia on the other hand has sourced lower cost wheat from alternative origins, hence wheat exports from Australia are running 75 per cent behind average.
Interruption to global trade flows as a result of Coronavirus is likely to weaken global grain prices, however to the end of February Australia has already exported close to half of an estimated eight million tonnes of wheat exportable
In an average year the exportable surplus is typically around twice this year’s anticipated volume, however the smaller crop will limit our exposure to Coronavirus to an extent.
Global wheat production is expected to reach a new record high in 2020 on the back of a two per cent increase to area planted, which if realised, will place downward pressure on global wheat values. In Australian dollar terms however, a weaker Australian dollar has offset some of the weakness seen in offshore markets.
Source: Profarmer Australia