Choose a specialty crop to help navigate uncertainty

By James Urquhart

15th February, 2023 

 

Looking ahead to another winter crop and the decisions that need to be made regarding seeding decisions sees us surveying the commodity markets and the climate outlook for some direction.

Without any bullish inputs of note, wheat futures have been on a downward trend for most of 2023, feeling pressure from a growing global stocks picture as evidenced by last week’s USDA Supply and Demand Estimate. Local values however are finding a level of support from a full export program out of Australia and a somewhat disengaged grower.

Canola markets are digesting a number of bearish inputs (including the sizeable Aussie crop, a burdensome EU carryout courtesy of the healthy flow of seed out of Ukraine and the chatter of Germany banning crop-based biofuels) however domestic prices have clawed back recent losses in an effort to extract canola from the growers’ hands. 

Furthermore, in recent trading sessions, grain markets have rallied sharply on the back of escalating tensions in Ukraine and concerns for the longevity of the Black Sea grain export corridor. 

Looking around the world today, there does not appear to be any obvious crop production issues amongst the major origins however it is safe to say that for as long the conflict in Ukraine prevails, we will inevitably continue to trade headlines – which lends itself to ongoing volatility.

On the weather front, with the consensus that that La Nina is in decline, the Bureau of Meteorology is expecting an increased likelihood (60-70% chance) of below median rainfall for most of the east coast cropping region for at least the March to May period. For some, the prospects of a chance to dry out after the last two or three wet years is somewhat appealing, however most will acknowledge that the arrival of a more ‘normal’ weather pattern in Australia brings with it inherent risks of dry periods and regionalised drought.

Managing climate and global commodity markets may seem beyond a grower’s control, however by choosing to grow a specialty crop, there are options available that can assist in the management of the variable market and climatic risks that growers face. Because specific demand for a quantity of specialty product exists, the end user needs to encourage growers to support this production. As such they are often willing to share the risk, as well as reward growers for committing to this production. Some specialty crops are supported with climate and market risk management safeguards for growers, including lower seed costs, the ability to return unused seed and washout-free pricing opportunities. These hectare style contracts typically also come with premiums over the regular commodity price. With similar if not exactly the same farming practices required to produce these specialty crops, they should be considered by growers looking to manage risks as well as maximise gross margins. 

Specialty canola for example is grown in the same way as any other canola but produces an oil that has desirable traits for the end user. As such, growers can attain a generous premium for the commodity, have an assured market and are not exposed to the price or production risks associated with pricing a regular forward contract.