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Wednesday, September 11, 2013

New season feed grain – the north/south divide

By Angus Brown  |  Source: ASX, CBOT

Key points

  • Northern feed grain prices are at a strong premium to southern prices.
  • In southern and western markets, feed grain is still priced close to export parity.
  • Strong northern prices will support values close to that market, but impacts will be small further away. 


2013-09-10 New Season Feed Grain FIG 1

2013-09-10 New Season Feed Grain FIG 2

New season feed grain prices are operating in distinct markets at the moment, with local and international factors pulling prices in different directions depending on where you are and the seasonal conditions.

A snapshot of new season feed grain prices is given by looking at ASX and track market prices.  In the north, ASX May-14 Sorghum is trading at $272/t, delivered Brisbane or Newcastle track markets.  ASX Jan-14 Feed Barley is trading at $225/t and is deliverable to NSW or Victorian track markets.  ASX Feed Barley is currently priced at the Victorian track price, as futures contracts are always priced at the lowest priced delivery point.  In WA, Feed Barley is priced at $235-240/t Kwinana today.

At the lower end of the scale, Victorian and WA Feed Barley is priced at around export parity.  This is because the supply of feed grain in these markets looks like it is going to outstrip local demand, with the surplus therefore going to be exported.  Compared to US Corn prices, ASX Feed Barley futures could still be overpriced (figure 1). This is especially so when harvest pressure comes on, as it could feasibly fall below $200/t if corn prices don’t rise.

In the northern market, the tight old season feed grain supply, combined with the deteriorating season and some severe frosts have seen feed grains move to a premium to southern markets, and a small discount to milling wheat in northern markets. 

Feed prices in northern markets have moved to what is called import parity.  As there is unlikely to be enough feed grain grown in northern areas to supply local demand, prices are now factoring in bringing grain in from further south, rather than being priced at export parity.

The strong premium in northern markets will support prices closer to this market, ie in central NSW, with the impact lessening further away as freight costs negate higher prices. 

What does this mean?

For consumers of feed grain in northern markets, the outlook isn’t great, although a decent start to the wet season should see an improved outlook after March and May.  Southern consumers can be relatively comfortable with supply, and there is potential for further price downside during harvest. Growers in both the south and west could think about forward selling some feed grain, especially if it is going to be cashed at harvest, as there may be a short term oversupply as we have seen at harvest before.

Feed grain prices will converge in northern and southern markets, but as shown in figure 2, it may take some time. If the sorghum crop disappoints similar to the winter cereal crop in the north, it might take until harvest 2014-15 before markets come back into line.

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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