Rain gives Australian farmers the grain light
By Angus Groves
As we wade through the current uncertainty in global food markets, it looks almost certain that the volatility in commodities will continue as we head towards winter conditions in Australia. There are many factors globally that are likely to move markets over the coming months, but they largely all revolve around two key issues; weather and COVID-19.
Farmers are generally adept with handling weather issues, after all, most farms are coming off the back of a second or third year of crippling drought. But this year it seems like the season, on the East Coast at least, is turning in their favour. We have seen a massive change across most regions since Christmas, which has seen subsoil moisture recover to levels encouraging most farmers to plant with confidence. And in the last fortnight the Bureau of Meteorology have released their three-month forecast, which points to higher chances of exceeding median rainfall, particularly in April. This will further boost farmers confidence of getting their crop planted on time.
As is usually the case at this time of the year, the other weather issues are global concerns, which relate to Northern Hemisphere production. And over the new few weeks we certainly have a few issues at play. From the dry conditions plaguing the EU and Black Sea countries, to the severe cold snap experienced through the Unites States. We have enough weather concerns globally that if either one of them were to take hold, combined with the uncertainty of supply chains due to coronavirus, we could see a significant rally ahead.
Take the dryness in Russia for example. The world has become so accustomed to a constant supply of Russian wheat, that if there was a production hiccup from prolonged dryness in April, this will then force the hand of the Russian government to curb wheat exports. We could see a rocket under the wheat market as importing countries scramble to find production from other countries amidst all the chaos that coronavirus is already throwing at supply chains globally.
This leads nicely into the next issue we’ve all heard plenty about – COVID-19.
The panic buying and fear of logistics constraints has led to surging demand from the general public, but also from governments around the world exploring measures to safeguard their own supplies.
To put it simply the world isn’t running out of wheat, but the way people and governments see it, the supply chain that physically harvests, transports and processes the product around the world could be hindered due to a long battle with the virus. So, whether it’s Russia, Ukraine and Kazakhstan’s limiting their exports, to demand everywhere you look, from governments such as Philippines, Turkey, Japan and Saudi Arabia, the coronavirus issues are here to stay for some time. And the wildcard in all of this is of course China who could be purchasing stocks soon enough if the trade deal with Trump is to be believed. Keep your eyes on the market, as there could be some ups and downs ahead.
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