Markets trading fundamentals, not headlines

By Matt Wallis

8th May, 2023 

 

As we draw a close to the traditional sowing window for canola and open for main season wheat on the east coast of Australia, the sowing conditions for the most part, are favourable at worst with many growers yet to ’turn the headlights on’ during their sowing campaign. Although in parts, the topsoil is on the dry side, the majority of the cropping belt is still filled with optimism given the prolific deep soil moisture profile thanks to the average to above average rainfall falling across most regions from March to May. The exception to this is north of the Lachlan River where recent rainfall has been elusive for most and disappointing for more. The rain which eventuated last week in these northern regions was just enough to restore confidence in the short term, however, another follow-up is high on the menu.

Having said that, canola plantings for the most part seem to have been uninterrupted throughout the east coast and any sown early have managed to germinate well.

Another positive to take out of this sowing campaign to date is that both the input prices appear to be facing some downward pressure and the supply chain has been running with no disruptions ensuring product is readily available when required.

Although early on it was voiced that canola plantings would be cut drastically, early anecdotal commentary would suggest that the decline is negligible overall and more inline with shifts in planned crop rotations rather than dictated by current commodity price relativities.

On the marketing front for old crop we have seen downward pressure of late as exporters appear well covered with the prospects of adding further ships out the curve dwindling. The domestic consumer although present, has been rather uninspired of late and given the grower traditionally becomes disinterested during sowing, it’s become a rather dull state of affairs.

Although the crop coming is for the most part yet to be planted, this is where the grower and trader seem to be having the most engagement of late. Although cognisant of the BOM’s long term rainfall forecast, it appears the current moisture profile combined with the high pricing environment is winning out and a tiny slice of pricing risk has been removed from some growers’ program as the gross margins for wheat in particular, are positive.

 I have always had it drummed into me that the best cure for high prices, is high prices and as we deviate from markets trading headlines and back to fundamentals, that certainly seems to be the case of late. The current high wheat pricing environment coupled with favourable global growing conditions has seen more cereal acres planted of which has led to more grains produced.

Although the Black Sea leaders are far from exchanging Christmas cards, their influence on grain markets of late has been more a page 7 story with CBOT wheat now below pre war levels. The true weighting of this relationship on grains markets will be tested come May 18^th when the current grain deal is up for renewal.