Markets

Bring on the rain!!

Matthew Pattison, May 8, 2018

WITH any luck, as this hits the press, some much-needed rain has turned the season around in some districts and more is on the way for others.  After an alarmingly dry April, we’re all hoping for a better and wetter May.

But it’s not just us. If we looked around the globe right now, farmers everywhere are getting quite nervous.

Starting in South America, Brazilian corn growers are looking skywards as rains seem to have turned off a month earlier than usual on their second crop of corn.  Rains that usually fall into May seem to have disappeared in early April, and many forecasters have sliced a lazy 5 million tonnes (Mt) or more off the later crop.  This alone, wouldn’t be a disaster, but it comes on the back of a poor Argentine crop and less than ideal planting conditions in the US.

US crops sown late

Crops there are now finally getting in, but April was far too cold for early planting and many crops there are two to three weeks later than they have been the past few years and this creates anxiety about the potential for crops to be pollinating in the hottest parts of summer.

Also elevating anxiety, there are the chances that the rest of May could be warmer and drier than average.  Early days, but not ideal.

Also, Hard Red Winter Wheat crops in the US are at best only described as “hanging on”.  The recent wheat crop tour there called for yields well below average, and there is a high probability that abandonment will be an issue if no significant rains in the next two weeks.

Also, on the watch list right now is the Russian wheat crop.  Last year you will recall, Russia had a cracker and produced 82Mt (or more) which saw her exporting more wheat than ever and for much longer into the campaign then we are used to, a significant reason for the flat world market the past six to twelve months.

But, April rainfalls have been disappointing, and May hasn’t started any better. In fact, it’s about two weeks from hitting the panic button there.

Many are already calling this year’s Russian crop 7Mt less than last season.

Whilst not a major problem up until now, Aussie growers are all too familiar with what six weeks of no rain can do to yields when you break out of winter, and things start to grow.

Russian crops aren’t any different, and if a dry April turns into a dry/warm May, then it’s absolutely “game-on” in the wheat market.  In fact, it would fair to say the early concerns for the Black Sea crops, coupled with the problems in the USA were the driving factor for last week’s strength in global and local wheat prices.

We don’t even need to mention our slow start here to feed the market bulls; there is already enough to keep them going for now.

High world stock, but not among exporters

The recurring theme for the past four years has been big crop after big crop keeping global stocks burdensome.  Rallies have been few and far between, but maybe 2018 is shaping up as a game changer.

While global stocks are heavy, no doubt, there is a disproportionate amount of these stocks for both wheat and corn sitting in China.  And once they’re in China, we tend never to see them again.  It is highly unlikely that China exports them to the world, even if there was a price shock.

What hasn’t had airplay over the past four years is that there has also been a corresponding boom in global demand and if we see a few of these production issues build, then this enormous demand base will start to get nervous.

US$4.00/bu corn and $5/bu wheat will then look pretty cheap if two or more of the above develop into full-blown issues.

Bring on the rain!!

This week’s COFCO International Australia Weekly Market Report is by COFCO International Australia sorghum trader, Matthew Pattison.

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