It’s all Supply and Demand

One of our recent newsletters was titled “Selling into a Flooded Market”, well since then we have seen some small grade specific spikes locally. These spikes have been your opportunity to complete your final sales. We have been reading and hearing about how much grain is left unsold in the CBH Network. Rumours have it that there is still over 2 MMT unsold. This equates to approximately 15% of last year’s crop unsold.

Priority needs to be placed on having a plan for unsold grain, needing to have income deferred until July is not a sound plan. The trade know this and there should be pressure on local prices come July 1^st. Develop a plan now, don’t just hope that prices will come back to levels closer to that which we saw in January.

The USDA recently updated their Supply and Demand numbers. Some of the major changes include;

• Wheat – Production was up by 0.5% from the last report and down marginally year on year. The biggest change was to ending stocks with a year on year increase of 16%.
• Corn – Production increased year on year by 4.5% with production estimated to be larger than last year. Demand will likely increase to compensate for the increase in production and ending stocks will reduce slightly year on year. This will have an impact to feed grain values.
• Barley – Production year on year is expected to reduce by 1% and ending stocks to decrease by 2.2%. Major impacts have been the reduction in exports from Argentina which are down 31% year on year. Another key factor is the important barley market of China. Their demand is estimated to be down by 1 MMT for the 2016/17 marketing year.
• Soybeans – Production is planned to be up 3.2% year on year. However, the ending stocks are forecast to be down by 9%. China is forecast to increase imports by 4.6% year on year. It is estimated that the majority of these imports will now be from the US due to supply and logistical issues currently being experienced by South American exporters.

What does this mean? Once again we have a very interesting market with volatility expected to continue. Wheat ending stocks have increased year on year which is a bearish factor for international prices. Locally, reports are that the start to the season is nearly perfect and we could potentially see a bin buster. This will add further pressure to local values.

A positive for local wheat prices could well be the value of the $AUD. The $AUD has been moving around quite a lot of late. We did see it as high as $0.78 only a month ago. Since that high, the RBA has announced one 25 basis point rate cut which saw the $AUD come off nearly one cent directly after the decision. Since that announcement, we have seen it come back to harvest levels of between $0.71 and $0.74. The US Federal Reserve is holding on increasing interest rates. This helps keep the $AUD higher. If they raise interest rates there then we could see the $USD firm against the $AUD.

In commodity markets the shining light has been the oilseed market. The interruption to the South American harvest due to weather and quality issues has seen the Chinese switch back to importing US Soybeans. Soybeans already have a tight balance sheet and this shows no signs of changing just yet so it adds further support to Soybean prices which in turn help our local canola and lupin prices.

This strength in Soybean prices has helped over commodities such as Corn and Wheat a little. The US farmer is always looking to plant a higher profit driven crop so they compare values regularly between Soybeans and Corn. At the moment they are leaning towards Soybeans over Corn and the potential of double cropping Soybeans as well. This fight for acres is exactly what we need in our current situation where we have a large world supply of Wheat and Corn. It is helping put a floor in the Corn price which conversely helps to keep Wheat prices supported. Below is a chart