WA Market Wrap 

By Ben Cotsford

18th May 2022 

 

To date, seeding conditions over most of Western Australia have been excellent and, in some areas, exceptional. This is the second year in a row many have encountered the “new phenomenon” that is sowing programs into soil moisture and being provided the luxury of “knock down” chemical application.

Most Australian farmers now look to be in prime position to capitalize on record forward prices, much of which is attributed to the effects of the crisis in Ukraine and to a lesser extent, weather concerns in parts of the USA and hot weather in parts of India as they come to the end of their growing season.

Growers’ gross margins for cereals have moved closer together as a result of barley and corn approaching the end of the planting window in the large exporting Ukraine without any sign of a nearby resolution to the situation there. The spread between wheat and barley a few months ago was $90 and now has shortened closer to $35 as we gain more information about potential lack of planting capacity in the Ukraine. 

This will mean in some locations barley’s additional yield will justify barley coming back into play and will most likely normalize rotations, whereas previously some swings towards wheat were anticipated.  The early break has given many farmers over a large part of Australia the opportunity to increase canola plantings subject to seed access to seed to allow them to make this increase. Having said this, there are parts of the East Coast that are now facing excess moisture and an inability to access fields, with some isolated reports of water logging. 

Recently the European union reduced their mandate for biofuel from oilseeds to try and prevent greater pressure on inflation, which moved the market significantly lower - coming off $70 with a similar pull back being seen in the Aussie market.  Even with the retrace, prices are still over $1100 on a port basis and are offering the best gross margins potential for all commodities. 

Given the circumstances of little exports from the Black Sea region, alternative origins must now step up and fill the shortfall.  One country the world was looking to was India however the global market caught a shock when India announced an abrupt ban on its wheat exports on May 14. The ban is in part due to a series of heatwaves during March that have impacted wheat production in the country. Government officials have also suggested the decision has been made to curb food hoarding and to check rising prices during a time coinciding with record retail inflation in the country.

In the U.S. spring-wheat futures extended a weekly rally, nearing the highest since 2008, as wet weather keeps farmers out of fields during planting periods.  Showers and snow will keep sowing stalled in the northern U.S. Plains, according to Commodity Weather Group. Heavy rain is risking floods there, while wet weather in Canada has also hampered fieldwork. That’s raising worries about crops, after drought slashed that region’s output last year and comes as a gauge of grains prices to remain near an all-time high.

 

Spring wheat is prized for its high protein content and used in foods from bagels to pizza dough, and this commodity like others has seen significant rallies. The spring-wheat crop should continue to see planting delays with heavy rains and cold weather in the forecast, higher protein grades pricing in Australia may see some gain on the back of these concerns.