By Darcy Ingram
10th August, 2022
Last week saw the first grain ships departing Ukraine since the February invasion signalling, that at least for now, Moscow intends to honour the safe passage agreement brokered late last month. Significant challenges still remain before we see the efficient movement of grain from the Black Sea region; access is dangerous, infrastructure is significantly damaged and Russia remains unpredictable. As expected, global markets declined on the positive news as any meaningful export flow would have an immediate impact on the global supply and demand situation.
Recent weeks have seen a few more of the usual factors influencing markets as extreme temperatures across the US and EU are being closely monitored for impacts to crop development, particularly in corn and soybeans. Global recession concerns have added a few question marks to long-term demand and despite coming from a long way back, sentiment has quickly shifted in terms of world grain exporter’s ability to meet demand as crop prospects across the globe generally improved.
Futures and local cash values were quick to come off the dazzling heights seen throughout the first half of the year as harvest commencing in the Northern Hemisphere saw buyers retreat from the fresh wave of grain hitting the market. Grower engagement has been limited following the decline in prices as many grapple with the swift change after such a bullish run up. Old crop markets are heavily focused on nearby demand with the trade and consumers remaining extremely cautious in not taking on unnecessary length during such a volatile period. Furthermore, the potential risk of FMD to the livestock sector will almost certainly see subdued feed grain buying as consumers stay hand to mouth.
Although extremely variable and a long way to go, many regions across Australia are shaping up for another successful crop year and many growers are now questioning when or how aggressively they should engage in new crop marketing. There is of course no easy answer to this question, every grower approaches marketing differently and has their own production variability and budget constraints to take in to consideration. It certainly feels that returning to the highs seen in recent months will be a difficult task given the current environment and we will need some fresh inputs in order to see a sustained market rally. Despite the drop, values remain historically high but so do input costs and farmers top line will need to be higher this year than last to achieve similar results. Supply chain woes continue to pose significant issues to exporters and Australia will undoubtably have carryover stocks that need to be taken in to pricing considerations moving forward.
The unfortunate reality of grain marketing is that for high pricing environments, someone usually needs to be experiencing some misfortune. We are obviously far from all issues being solved today and this market is never far from pulling out a few surprises but for the moment the picture has become a bit clearer on how the balance sheet will be managed.
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