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Grain prices continue rise ahead of US holiday

by Henry Wells, 04 July 2017

US FUTURES markets continued their rise overnight, shoveling more dollars on to wheat and other commodities as market participants reacted ahead of the US 4 July holiday.

A paddock in Corrigin, Western Australia, which was awaiting planting rain early last month.

In its weekly market report, Nidera discussed the factors which drove up the Minneapolis Hard Red Spring wheat futures contract by approximately A$112 per tonne and the Chicago Soft Red Winter wheat contract by approximately A$60/t.

While the response of each market participant —consumer, exporter, farmer, speculator, trader — varies according to the possibilities or pressures they face, a multi-day rise such as this feeds the momentum.

The uptrend in North American futures prices has been mirrored in Australian values, where concerns about lack of moisture in parts of the grainbelt have further fuelled prices to rise.

While a technical correction in US values is inevitable, grower selling in Australia appears to be limited by concerns that crops will struggle in coming months to produce respectable yields.

“Certainly the lift in global and Australian cash prices has been welcomed by the farmers here.  Many are very cautious on forward sales still given the weather conditions,” Lachstock managing director, Lachie Stevens, said.

“We often see it where farmers are more willing sellers as the market tanks under $250 port when fear sets in, than when markets surge over $300 and greed takes hold,” he said.

“It’s a trap we need to keep reminding ourselves about; if we are above budgets and costs with good returns, we should start pricing.”

Mr Stevens said many southern-zone farmers were confident of growing a crop each year, and some would be prepared to commit 10-20 per cent of expected production.

“We need to first assess the production risk, and only enter the market to sell when feeling confident about the crop; if not, don’t sell.”

Mr Stevens said current values and dry conditions were enough to encourage some grower selling.

“We will see some farmer selling here and it will certainly pick up if the forecast improves, both for old-crop and new-crop.”

Markets in play

Exporters and domestic consumers are inevitably tied into an obligation to buy grain to feed their business, whether through a steady monthly quantity, or variable and hand-to-mouth buying.

Mr Stevens said exporters with long-term agreements in place which required them to push a certain tonnage through rail and port facilities were among the inelastic buyers.

Domestic consumers have been extending cover in recent months because of rising old-crop values, and the uncertain outlook for new-crop supply.

“Some entered the market a couple of weeks ago to lift coverage, others have been building length for a while given the low flat price and full carry structure in the market. 

“Others have a more hand to mouth-type sales business, and so reflect that in their purchasing.” 

“Then you have the speculators. With limited farmer selling, the market going one way and a poor forecast, traders will continue to push the market along quickly and provide further volatility to the market, which in turn provides opportunities for others.”

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