Strap in for the annual volatility rollercoaster

Guest Author March 19, 2019

The Tempesto rollercoaster at Busch Gardens, Virginia. Photo: @ThemeParkReview

AFTER AN extremely dry summer, grain growers in Queensland and parts of northern New South Wales received some very welcome rainfall over the weekend. This was the first significant rain event for 2019, and hopefully signals a change to the abnormally dry weather pattern experienced over the summer.

Many of the regions’ summer crops have already been harvested or are so close to harvest that the rain will not provide any meaningful benefit. However, there are significant areas of sorghum and cotton that were sown after storms just prior to Christmas, and those crops will undoubtedly be feeling much happier after receiving their first drink since being planted.

March temperatures have been well above average across most of the summer-cropping region, and the late crops were certainly feeling the pinch. Many growers were looking at spraying out their crops because yield prospects were poor, and they were looking to conserve what moisture was still there for a possible winter-crop program.

While the falls were nowhere near enough to guarantee a plant, they will definitely provide a massive boost to winter-crop prospects in districts which were fortunate enough to be under the storms. No doubt there will be some early crops planted, but the main planting window is still at least four weeks away, and much more rain will be required to ensure all intended winter-crop area is sown into moisture.

Despite the top-up in Queensland and northern NSW over the weekend, soil-moisture levels across almost all of Australia’s grain-growing districts remain below average or well below average for this time of the year. There are many districts where soil moisture levels are at or close to the lowest on record.

This will make it extremely difficult to achieve anything more than average production in Australia this season unless there is a significant move to a wetter-than-average bias for the remainder of the year.

The latest climate outlook from the Bureau of Meteorology suggests that the tropical Pacific is likely to warm to El Niño levels during the Australian autumn. The key here will be if that pattern continues into the winter as its drying influence, particularly over eastern Australia, is stronger in winter than in autumn.

Argentina, France wheat rises, US disappoints

Prospects are much better on the other side of the Pacific, where wheat plantings in Argentina are forecast to rise for the fourth consecutive season. Forecasters are suggesting that the area planted to wheat could reach 6.9 million hectares (Mha) this season, a rise of almost 10 per cent from the 6.3Mha sown in the 2018/19 season.

Argentina produced a record 19.5 million tonnes (Mt) of wheat last season, and has been a significant exporter into some of Australia’s traditional Asian customers in the past six months. However, Australian exporters have been finding some Asian love in recent weeks with a number of sales reported, including to traditional destinations such as The Philippines, Indonesia and South Korea.

US wheat export sales continue to disappoint the market, and time is quickly running out to make sizeable sales before new-crop Black Sea stocks will be available at a significant discount to current crop. Much of the hope and expectation has been around China and its requirements once an agreement is signed to end the trade war. Alas, no deal has been signed as yet.

On the other hand, French wheat exports have picked up significantly in the past month. French farming agency FranceAgriMer has increased its forecast for French soft-wheat exports outside the European Union in the current marketing year from 8.85Mt to 9.5Mt. FranceAgriMer said there was potential for more increases as competitively priced French wheat draws late-season demand from importers.

Diverse moves in corn, soybeans

The huge South American summer-crop harvest continues without too much interruption. The official Brazilian agency Companhia Nacional de Abastecimento (Conab) has reduced its summer corn crop forecast slightly to 26.2Mt, but the Safrinha (second) corn crop has been increased to 66.6Mt. That makes the total corn crop 92.8Mt, up from 91.6Mt forecast last month, and up 15pc on the 80.7Mt produced last year.

Conab’s soybean production estimate has been reduced to 113.5Mt, down from 115.3Mt in February. Last year’s soybean crop was 119.3Mt, so year-on-year production is now down 5.8Mt, or almost 5pc. The Brazilians will have to wait another year to steal the mantle as the largest global producer of soybeans from the US.

In Argentina, the Rosario Grain Exchange is calling the Argentine corn crop 47.3Mt. This is an increase of 800,000t from their previous estimate. The big mover was soybeans, with the Rosario Grain Exchange now calling the crop 54Mt, up a whopping 2Mt from its previous estimate in February.

The South American summer crop is the final piece of the 2018/19 crop-year puzzle. While final production is not locked in just yet, global markets are becoming increasingly comfortable with the levels of production and the harvest prospects. The focus is now turning to the 2019/20 crop.

Volatility beckons

The northern-hemisphere winter crop is the first cab off the rank, and it is entering a critical phase of development. It is now spring and, depending on location, the crop has emerged, or is emerging from dormancy, and is very susceptible to weather damage. Any sudden change in the weather pattern that exposes the crop to an extreme cold spell can damage or even kill off the plant.

The other big swinger at this time of the year is summer-crop planting intentions, particularly in the US. With a little bit of cold and rainy weather, there will very quickly be talk that farmers won’t be able to plant corn, and there will be a swing to soybeans. The reality is the US farmer has consistently shown that they have no problem seeding corn in tight windows.

New-crop uncertainty is ultimately reflected in global futures markets. As a result, they tend to be volatile at this time of the year. Last week was a classic example, with the recent downtrend in wheat broken with a couple of big rallies. That volatility will most likely continue, as there is a lot of northern-hemisphere weather risk in coming months. This could provide some juicy new-crop pricing opportunities here in Australia once the rain arrives and production certainty increases.

This article was contributed by Grain Brokers Australia.



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