Mecardo Analysis - Agronomics or price
- By: "Farm Tender" News
- Cattle News
- Feb 28, 2019
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By Andrew Whitelaw | Source: Mecardo.
In two months’ time the 2019/20 season will commence with seeding. There are still decisions to be made on what to acreages will be planted to each commodity. There is however a trap to avoid when making these decisions.
Prices have fallen dramatically since harvest, approximately A$80 from the harvest high to present. Prices are however still extremely attractive on a historical basis (figure 1), with prices being lower 94% of the time since 2009.
It is therefore important to understand that these premiums over world values will only stay around if we have another drought. We have discussed this numerous times such as our early October article (Warning: This isn’t the new level).
There have been numerous newspaper interviews with farmers and agronomists who discuss that they are growing x crop due to the current high prices on offer. However, we have to be aware that the current price is in backwardation; trading at a higher level than the forward price. So, does having a high price at seeding have any bearing on the price at harvest?
In figure 1 the April percentile rank (green) and change in price between seeding and harvest is shown (orange). In this chart we can see that there is largely no relationship between high prices at seeding and high prices at harvest.
There are years with high prices, and large negative swings by harvest conversely there are years of high deciles at seeding where the prices remain largely unchanged.
What does this mean?
It is hardly surprising that there would be a limited relationship between the price at harvest. There are so many factors both domestically and foreign.
It is not worthwhile making your planting decisions based on the spot price. The only time price should be a determining factor in your planting decision is when you are able to cement the price.
It is best to plant that crop that will form best with your agronomic conditions and your long term plans.
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