Finding the value in grain price volatility

By Matt Wallis

19th October, 2022 

 

Since late February this year when the situation in the Black Sea region escalated, global agricultural markets have been trading with such strength and volatility that even those most experienced have found themselves scratching their heads trying to figure out how to best participate, if at all, without getting their heads taken off in the wild swings. It wasn’t long ago where a 20USc/bu move in the futures market made headlines, now it seems to be just part of the norm.

Yet again, the conflict has escalated further with many cities and key pieces of infrastructure damaged. With the Ukrainian grain export deal set to expire mid-November, this presents another hurdle in what is a very stressful and complicated situation is already, potentially throwing more fuel on the fire and ensuring the volatile markets are here to stay for just a while longer.

Locally now we have slowly but surely seen harvest commence in various parts of the country and as of the last few days windrowing kicking off in SQLD and NNSW. As expected, paddock trafficability is at the front of everyone’s mind with many starting to ponder how they will manage to move the crop off the header and into the bin without breaking anything or making a mess. In a perfect world the tap would turn off until after harvest however the BOM is forecasting a much different outlook.  

Wild, cool and wet weather continues to plague NSW with all catchments, dams, rivers and the like full to the brim. Paddocks in parts have been un-trafficable for some time leading to farmers forced to utilize planes for aerial applications of in-crop treatments, adding to what is already proving an expensive crop to grow.

Although there has been heart ache for some, for the most part the crop has remained relatively unaffected. In fact, although down from last year NSW is still expected to produce a phenomenal amount of grain. The general consensus across a few major forecasters is that the states potential production could still total approximately 2 million tonnes of canola, 2.5 million tonnes of barley and 9-10 million tonnes of wheat which would be a phenomenal result.

On the marketing front, even though there is another large crop looming with substantial carryout both in NSW and nationally, farmers have been reluctant to make many forward commitments at all. Not to say they are unaware of the harvest pressure that is sure to come, the seasonal conditions have just struggled to inspire commitments with the production risk still deemed too high.

To put that into perspective, as an overall percentage forward sold this year, we are tracking very similar to that of 2015/16 and 2019/20 seasons where 50-60% of the crop was sold over the harvest period. Now if that were to happen yet again this year a fair assumption to make would be that it would put extreme pressure on the local market as traders struggle to best manage their programs.