Now that harvest is nearly complete and traders are back from holidays, markets should be starting to fire up again Producers who went to the beach bemoaning the fall in canola prices might have come back to a nice rally, while wheat and barley have shown remarkably little volatility.
Not a lot has happened in the three weeks since we last looked at harvest
receivals. Having said that, in the week
before Christmas CBH in WA received almost as much as the entire Queensland
harvest. Figure 1 shows CBH as the biggest
handler by a mile, nearly doubling GrainCorp’s entire east coast receivals.
There is more competition on the East Coast for bulk handler storage, and
we generally look at GrainCorp receivals for more on harvest pace than total
production. It is safe to say WA has had a bumper crop,
while we can see Victoria and SA have struggled, as forecast, with tough
seasonal conditions.
In terms of price, the story remained the same over the Christmas/New
Year period. Wheat and barley remain
stubbornly confined within a narrow range, while canola has shown more
volatility.
Even with a World Agricultural Supply and Demand Estimate (WASDE) Report
that saw corn rally to a 12-month high, local wheat and barley prices remain in
the $300-350 price range at port (Figure 2), depending on the grade.
The cut in soybean estimates in the WASDE was part of the impetus for
higher canola prices on Friday. Locally
sustainable canola jumped around $15 to be priced at $822 on Monday. It was only just pre-Christmas when canola
fell from near $800 down to $750 (Figure 3).
The volatility in canola is crazy compared to cereals, but who knows if
it will continue.
It has also been hard to miss the falling Aussie dollar, which usually adds
strength to local grain prices, as it makes our grain cheaper relative to
competitors. We’re yet to see too much
movement on this front, with ASX wheat losing ground relative to Chicago Soft
Red Wheat (Figure 2).
What does it mean?
Holding canola through the dips in the market has worked so far, but it is hard to see too much remaining in the warehouse after this latest rally. GM Canola is still at a huge discount to conventional however, as such it might take a relative price move to draw it out. Cereal prices remain in a holding pattern, with little in the way of international news to move values. A post-harvest basis rally could add $10-20, otherwise, growers will have to wait for some production issues to materialize overseas.
Have any questions or comments?
Key Points
- Harvest is all but finished with a bumper crop in WA and smaller crops in Victoria and SA.
- Cereal prices have been relatively steady over the break, but canola continues to show volatility.
- The lower Aussie dollar should support cereal prices, but an international rally is also required.
Click on figure to expand
Click on figure to expand
Click on figure to expand
Data sources: Bloomberg, CBH, Graincorp, AWH, Mecardo