Grain prices are being insulated from the price falls affecting other commodities globally, a Rabobank analyst says.
With planting season only weeks away, Australian grain growers are preparing for what looks like it might be a good season – and one analyst says optimism about pricing is justified.
Rabobank senior grain and oilseeds analyst Cheryl Kalisch Gordon says the outlook for Australian grain growers is the most positive it has been in years.
“There’s been widespread rain and the three-month forecast continues to look promising – so the Australian supply outlook is much improved,” she says.
Forecast to trade at around US60c for the next 12 months, the low Australian dollar will bolster export opportunities and support local prices in 2020, Kalisch Gordon says.
“We forecast CBOT wheat will remain about US$5.50 a bushel over the next 12 months – keeping in mind that in this range we get about an A$5 per tonne lift in local prices for every cent lower that the Australian dollar trades,” she says.
Locally, wheat prices will remain above average due to the lower Australian dollar and higher global prices, Kalisch Gordon says – adding that Australian farmers could have a good year with manageable increases in input costs.
Wheat prices spiked in the second half of March after markets recovered following the oil price crash and a downturn in sentiment due to the COVID-19 outbreak.
But that recovery was also driven by consumer stockpiling of items such as noodles, flour and pasta – which Kalisch Gordon says will not last long term.
The risk of a high COVID-19 infection rate for regional Australia is also a concern, she says.
“If Australia does suffer a high infection rate in the regions it may impact on the ability to plant or harvest crops, the results of which could be devastating,” Kalisch Gordon says.
“Other watch points include re-infection in China, which would again disrupt agricultural chemical supply and create a larger demand shock, and an increasing Australian dollar. Our low dollar is imperative to our position this season.”
Kalisch Gordon adds that drier conditions in the Black Sea region, which represents 30 per cent of global wheat exports, could see governments restrict exports, while drought in parts of North Africa could lift demand.
“Considering the depreciated Russian ruble and the country’s history of limiting exports to manage domestic inflation, this is a material concern within the global market and would lift local prices even further if limits placed on exports were restrictive,” she says.
Grain by Grain
Despite an expected supply-based price softening coming into harvest, Kalisch Gordon says wheat prices will remain above 10-year and even five-year averages.
High incoming barley stocks globally, coupled with lowered demand for corn to produce ethanol, will likely soften corn prices in the feed complex, she says, and therefore remove support from the already soft global barley market.
“There’s also now a lot less beer being consumed in China, where 67 per cent of consumption is through food service, and as such demand for malting barley will also decrease,” she says.
With the cancellation of the Olympic Games and other significant events, this downturn in consumption was now a global phenomenon, contributing, Dr Kalisch Gordon said, to barley’s soft outlook.
“Despite the prospect of lower prices, many Australian farmers will look to plant barley this season as a low-risk option to establish cash flows after the drought,” she adds.
Demand for grains and oilseeds used in the biofuel industry – such as corn, soy and canola – will also decrease due to COVID-19 travel restrictions and lower fuel consumption; leading to a lower canola price.
Kalisch Gordon adds the outlook for pulses also remained uncertain, with some short-term price lifts likely due to stockpiling and supply in India coming in below targets, but with longer-term downward pressure on prices depending on how badly COVID-19 would impact subcontinent incomes.
“India, the world’s largest pulse importer, is also particularly sensitive to income volatility, which may be a negative for pulse pricing, so we will be keeping a close eye on this market over the next month,” she says.