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Thursday, December 22, 2016

A year is a long time in the grain game

By Andrew Whitelaw  |  Source: CME, ACA

Key points

  • SRW futures prices are 15% lower than the start of 2016, whilst HRW is down 11%
  • There were reasonable pricing levels achievable throughout the year, but they were not taken advantage of by the majority of growers.
  • Prices in Albany, Kwinana and Port Kembla are higher than in the middle of September, and flat to lower in other ports. 

2016-12-22 GRAIN FIG 1

2016-12-22 GRAIN FIG 2

The year is all but over. The boys and girls in grain must have been well behaved, as Santa Clause has delivered a crop that will be remembered quite some time. The close of the year is almost upon us, and we thought it was worthwhile that we take a look back at the year.

The futures market has been on a downward trajectory since last harvest (figure 1). The fall in wheat was unsurprising after four good global harvests, and with favourable planting and weather in Australia this has led to a drop in local pricing. Although, were there good opportunities throughout the year to price well?

In figure 2, we have picked four points during the year to give an indication of the change in price (APW1) from present day to the middle of January, April, June and September. The chart shows a number of different ports, and it is quite clear that in all port zones prices have deteriorated overall since the first half of the year, but since September prices show minimal variation with only some zones showing a higher current price.

At present, grower sales have been depressed compared with recent years, with little sold overall. During June/July it was apparent that at worst the crop was going to be in good condition, and physical prices were at what could be considered a decent price.

So, as we go into the new year with enormous global stocks of wheat, the grain price is not looking all that positive for the coming months, and is likely to stay flat. The major market drivers over the coming months, will really be around the progress of the northern hemisphere crop.

In recent times we have seen a lot of clutching at straws looking for the bullish factors to drive the market, but in reality, all of them have been very small scale issues which may add a couple of dollars, though do not add up to the kind of rises that growers are hoping for.

In the main we can look at issues around snow cover, and planting figures but the true condition of the northern crop will not be realised until February/March. In the event that conditions are poor, and the likelihood is high that production will be drastically reduced, then we will start to see upward swings in price.

What does this mean?

In the last twelve months, there have been ample opportunities to price grain, with reasonable prices available when the crop was in a well-known position. As we enter 2017, with a huge amount of grain still unsold, it is important to develop a strategy to take into account the 2016/17 and 2017/18 crop.

In your 2016/17 strategy development, it is important to take into account the costs of holding your grain, as if the market does stay flat your value will be eroded.

The major driver in prices in the near term will not be realised until February at the earliest, if at all. In your marketing strategy, it is important to remember that the world is still sitting on huge stockpiles and planting by many analysts is expected to largely remain the same globally in 2017.

Mecardo information is provided to assist in your marketing decisions. It contains a range of data and views on the current market. It is not intended to constitute advice for a specific purpose. Before taking any action in relation to information contained within this report, you should seek advice from a qualified professional. The information is obtained from a variety of sources and neither Mecardo nor Ag Concepts Advisory will be held liable for any loss or damage whatsoever that may arise from the use of information or for any error or mis-statement contained in this report. 

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