Multiple bearish inputs but El Nino the sleeping giant

By Angus Groves

25th January, 2022 

 

As we march towards the end of the first month of 2023, the grain marketing outlook for the new year appears to be paved with plenty of negative inputs.

The first is the improved Argentinian weather forecast, for which the rain is yet to fully materialise, however the maps are indicating a significant change in fortunes for our Argentinian friends. This would relieve the drought pressure they are currently facing and could begin to turn the tide for one of the Southern Hemisphere’s largest exporters.

There is the also the slowing Chinese demand for grains & oilseeds, which in the short term will be driven by Chinese New Year celebrations and over the longer term by slowing Chinese growth. As always with China, Australia is heavily reliant on their growth for a number of our exports, not just grains, so this will be one to watch closely throughout the year.

Another factor that continues to create challenges with the world wheat market is the continued presence of cheap Russian exports. Russia’s persistent push to get these exports out of the country and into international destinations is creating sustained pressure whenever the market tries to push higher. This will continue to be a drag on sustained moves higher unless the geopolitical landscape changes, which can tend to happen when there are countries in conflict.

The last factor bearish factor affecting our prices on home soil is our strong Australian currency. As I write, the Australian Dollar is nudging 70.0USc, just last October our currency traded down to 62.0USc – less than 3 months ago. This is an increase of between 11-12% across this time, and as you would all know, the October, November, December window is our harvest period and certainly not an ideal time to be losing 11-12% of our local price due to currency movements.

The potential elephant in the room after 3 years of above average rainfall is the ongoing threat of El Nino as we move into Autumn. Some climatologists put the chances of an El Nino forming at about 65% and that it won’t be formed until after June 2023.

As most would know, El Nino weather pattern brings hotter and drier than average conditions to the vast majority of the East Coast grain producing regions, so this pattern would be most unwelcome during Autumn and Winter when farmers are trying to sow and establish their main crops.

This summer has already turned to the drier side rather quickly with the increased evaporation rates due to rising temperatures, but also the lack of consistent rainfall that we saw through Winter and Spring.

On the positive side, however, there is typically a neutral period of weather after the breakdown of La Nina and a transition to El Nino. So perhaps there will be a neutral or average period after this La Nina breaks down during summer. As most farmers would agree, average is much better than the extremes of the last few years.