Volatility has started to return to the Grains market

By: "Farm Tender" News
Cattle News
May 29, 2019
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This article is bought to you by Reading Transport.

By Sarah McGrath - AWB.

In our part of the world, follow up rain is badly needed but on the other side of the globe, too much rain is rattling markets.

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Wet conditions in the Midwest of the United States has delayed the planting of corn, leading to a strengthening corn futures market. For this time of year, the US farmer should be upwards of about ninety per cent planted on corn however was well behind this at last report of somewhere near sixty per cent. As potentially more and more hectares that were to be corn are not planted, the carry out of corn in the US tightens. Many US farmers are now looking to plant soybeans instead of corn, which has softened soybean futures. This comes at the same time as US President Donald Trump announced a USD16 billion aid package for US farmers due to the trade war with China. The wet weather has also played havoc with the US wheat harvest, with concerns emerging over the effects on quality.

Meanwhile in the southern Volga region of Russia, concerns are emerging about dry conditions affecting production estimates. Recent estimates have that crop slightly lower than first thought though it will likely still be a year on year increase. Closer to home, the start to the season in Western Australia has been less than favourable with time running out for a meaningful autumn break.

So after what felt like an eternity in the grains market where there wasn’t much going on, volatility has started to return to the grains.

US wheat futures have rallied strongly over the last fortnight with nearby months climbing over 60USc/bu or the equivalent of over 33AUD/t with new crop also following higher, up 42c/bu or around 24AUD/t to be sitting in the top 80% of futures prices over the last 5 years.

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This rally in the futures market throws up a couple of new opportunities for growers. For the 2019/20 season, domestic prices and basis remain relatively strong, so forward cash sales are still a reasonable choice to manage some price risk. Alternatively, you can put in place a pricing mechanism which will allow you not just to set a minimum price but participate in the futures market price should it continue to go higher.

For growers willing to look a little further out to the 2020/21 season, futures are trading around the AUD equivalent of $285/t. As the weather drives the US market higher there may be opportunities to start or add to futures hedges at levels which are currently in the top 20% of prices from the last 5 years.

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The next few weeks will be dominated by discussion surrounding US weather and what effect that will have on futures markets. Continued wet weather will surely edge corn higher and wheat should follow. Locally, there has been some reluctance from growers to start marketing a crop not yet grown due to experiences from the last couple of seasons. However, we have seen many growers successfully capitalise on events such as the one we’re seeing in the US today and capturing benefits further out the curve.

www.awb.com.au