Australian grain prices are easing as the eastern states' rains trigger a burst of paddock feed and build subsoil moisture for a winter cropping program. The rains are also locking production from a late summer cropping program.
However, the balance sheet for the Australian domestic market remains tight, with no real way of forecasting the impact of the rains on future demand, and no way for the market to control the amount that is exported versus retained to supply local requirements.
In the past week prices have not fallen as fast as offshore prices in port zones from Port Adelaide east that can supply domestic end-users. In SA local end-users continue to compete hard to capture market share against traders operating into NSW and Vic, and against exporters.
In WA the market is following the lead from Chicago Board of Trade futures and has fallen further. This is where further price falls across the board might be driven from, as the backstop of export values erodes the local price base.
In international markets we are seeing the price of Russian wheat come under pressure. Russian farmers have been slow sellers but as they edge closer to the start of the 2020 growing season, they may begin selling more aggressively.
French wheat has been the cheapest available for importers, but over the past week or so, declines in Russian prices have seen the tables tip back in favour of Black Sea origin wheat for importers like Egypt.
As French and Russian exporters compete into key Middle East and North African markets, we could see further price pressure. Falling shipping costs, and a lower euro are both now starting to help French exporters. That could be enough to trigger further declines in Russian prices if they need to retain competitiveness.
Meanwhile there is limited competition for France and Russia from United States, Australian or Argentine wheat, meaning that the global price level is likely to be determined by where Russian prices head.
In Australia our market will be driven by views about our own supplies and demand as we make our way to harvest late in the year. If exports tighten supplies from SA and WA too much it will support our price base.
Alternatively, if the east coast rains drop demand more than anticipated, or if the domestic trade has locked up too much grain from last year for domestic end-users, (or if farmers hold onto grain too tightly), we could see a softening in basis levels earlier in the year than anticipated. If global prices are weak at the same time, it could trigger a significant drop in Australian prices well ahead of new season supplies hitting the ground.
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