Gloomy conditions for both the markets and the skies

By Angus Groves

30th March, 2023 

 

As the first month of Autumn draws to a close, the weather gods have delivered some varying levels of rain across the state as our main season sowing window opens.

Reports of huge rainfall totals continue to roll in across NSW, with some storms delivering totals in excess of 200mm in the Warren district last weekend. Whilst growers in the Riverina got under a few separate rain bearing systems, which has set them up for early sowing of dual-purpose crops across the next fortnight.

Clearly these totals are courtesy of storm cells, but it just goes to show that La Nina might have a final act to prepare us for sowing before she leaves us after her three-year stay.

On the marketing front, we have seen values whip-saw over the last few weeks, with geopolitics and macroeconomic concerns the primary reasons.

The grain corridor agreement was extended last week, however there was some debate over whether that extension was for 60 or 120 days. With the Russian foreign ministry suggesting the extension would only be in force for another 60 days, whilst the Ukrainian deputy prime minister was of the understanding it was a 120-day extension.

Seemingly, this question of whether the corridor extension is 60 or 120 days might not seem like a major problem. However, it does put into focus how much risk the global commodity markets place on this extended deal, as wheat futures markets increased last week on account of this uncertainty.

The other major story that has engulfed the globe in recent weeks if that of the many bank failures in the US and other apparent banking issues in Europe. The futures markets can also end up entangled in this mess, with many funds holding futures positions in global soft commodities. When this risk is perceived to be high, funds are able to liquidate their positions quickly, causing dramatic shifts in the price reflected at the farm gate.

The canola market has been particularly hard hit in the last fortnight, with values plummeting as much as $160 AUD/MT in recent weeks, before recovering a fraction of this value as I write.

Fundamentally, there have been the classic opposing factors of supply and demand working against canola in recent weeks.

The demand has fallen away thanks to a bearish global consumer faced with higher interest rates and slowing overall growth, whilst the supply has dramatically increased from a European grower who is now comfortable liquidating their physical canola stocks and the funds liquidating their futures positions. Both of these factors meant the market could only head in one direction.

This week however, there is some optimism, and the market has now found a level where both consumers and funds have found interest again. And when there is more demand, thanks to physical consumers of oil and meal, it means the price is poised for a recovery. How long this recovery will last is anyone’s guess.