Heavy stocks continue to weigh on markets 

By Darcy Ingram

8th March, 2023 

A long, drawn-out harvest has meant that without much reprieve the focus for most Australian growers has quickly shifted to preparations for the 2023/24 crop. Finishing touches are being made to cropping plans, orders are placed and fertiliser is starting to make its way back up country. However, before farmers can officially call an end to the last year’s harvest many are weighing up what to do with the unsold grain they still have on-farm and warehoused in the system.

Grower selling was seen to decline in recent months as domestic values stagnated or softened on a seemingly comfortable domestic and global supply. However, growing uncertainly in the Black Sea region along with the trades need to reengage Australian growers has seen domestic values firm of late despite international markets coming under significant pressure. Russia continues to dominate global export tenders, with an abundance of grain they are willing to sell at cheap values, setting the benchmark for export business moving forward. Demand remains strong for Russia’s record 100 million tonne wheat crop with exports nearly doubling in January and February versus the previous year. With projections of an upcoming 86 million tonne crop, expectations are that so long as exporters can continue to navigate the financial and insurance problems brought on by imposed sanctions, then Russia will continue to strongly influence global agricultural commodity values moving forward. 

International futures markets were further pressured by the US Department of Agriculture’s (USDA) recent outlook for 2023/24 US plantings with a significant increase in corn and wheat acres. High commodity prices were touted as the main driver for a projected increase in plantings, as acreage for wheat was forecast to grow by 3.8 million acres to 49.5 million with corn tipped to rise 2.4 million acres to 91 million in total.      

The question then becomes, can Australian values hold or rally if global sentiment and export competition remains unchanged? Despite local prices remaining historically high, ranking in the 8th to 9th decile for most commodities, grower selling has been relatively sedate lately. Shipping stems across the country are booked solid throughout the first half of the year and the lack of engagement from the grower has forced buyers to keep their pencils sharp in order to keep exports flowing on time. Demand will become less certain as we draw closer to the back half of the year and are met with more competition for export business from the Northern Hemisphere supply. The view remains that there is a comfortable volume left unsold across the East Coast of Australia and any significant increase in selling will undoubtably weigh on values.

Surely adding to the uncertainty of when to make sales is the Bureau of Meteorology’s recent forecast for a drier than average Autumn across much of the country. The outlook suggests a 30 percent chance for the majority of the country to exceed median rainfall across March to May and if realised could certainly impact Australian planting and production prospects, in turn supporting values. Holding out for weather is a gamble for some and a hedge for others, solid opportunity remains today while exporters are in need but a dry forecast could lead to further upside.