Droughts and flooding rains
by Warren Lander
Talk about droughts and flooding rains. In the US, weather continues to play havoc, delaying planting of the corn crops and causing flooding of wheat fields, which could end up reducing the size of both crops and downgrading the quality of the US crop. The USDA Crop Progress Report released on May 28 showed that only 58% of corn had been planted in the US, which is 32% behind the five-year average for this time of year of 90%. Ohio and Indiana are furthest behind with just 22% planted in both states. Here in Australia, areas of the east coast are looking down the barrel of a third year of below par winter crop rainfall. Most areas of WA have had little rainfall since November of last year. The result has been a rally in trade prices, reversing the downward trend that has dogged markets following harvest.
While the current weather rally has significantly increased wheat futures, our local wheat cash pricing has also sky rocketed by over $40 to 50mt depending on delivery location. A month ago when I last wrote my article, a delivered price of $370mt Griffith was achievable with no bids for new crop, but today $410mt delivered Griffith for 18/19 wheat and new crop 19/20 bid of $335mt. The majority of this price increase has happened in just over the last 2 weeks and all within the time frame of the notification of wheat importation hitting the headlines. Most people thought that the market would crash but that has not been the case. As has been shown time and time again, the market does what the market wants. The local domestic market undoubtedly has considerably strength and it does not matter if you are selling to feedlots, chooks, stockfeed processers - the opportunities for the seller to capture high prices are real.
Many are wondering whether the domestic price is going to stay firm. Even if the east coast season turns around and local basis falls, the reduced area of corn sown in the US will drive the demand for wheat to replace corn in feed ration. Opportunities for WA exportable surplus should place pressure on east coast pricing. Availability may be limited with the east coast exporters wanting a piece of the action too. So in short, you would expect prices to stay relatively strong.
As always, there are a number of factors at play today both in domestic and international markets. It all seems a bit like ground hog day again in Australia. By that I mean a repeat of weather driven markets with growers hoping for rain on one hand and wanting prices to stay firm on the other. A reasonable rainfall event in wheat growing districts in both Western Australia and on the east coast, is expected shortly. From an international perspective, the next market movement is likely to come on the back of the next USDA Crop Progress Report which is due on Monday. The backdrop to all of this are the ongoing trade tensions between the US and China. Far from resolving themselves, indeed they seem to be escalating.
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