The 2016/17 marketing year will go down in history as being the biggest production year on record. I guess we have been hearing that all year. Even locally we are estimating a record 17MMT year in WA. This is having, and will continue to have, a big impact on prices.
The latest USDA report which was released on the 13th July indicated that there was an increase month on month of 1 % to the world wheat production. Countries with increased production included Australia, Argentina, Canada, Russia and Ukraine with a total of 3.5 MMT.
Although there has been a large increase in wheat production this year we have also seen a large increase in wheat consumption by more than 11 MMT year on year, which will help offset some of the production numbers.
All that aside, it is pointing to a situation we have not seen since 2011/12 where price collapsed coming into harvest with a record year locally and no major production hiccups world-wide.
Below is a breakdown of production and ending stock numbers for major commodities.
The winter wheat harvest is close to finished in the US with Kansas 98% completed. This year has been one to remember for the US farmers with record yields in Kansas. As a result of the higher yields, there has been an impact on protein levels and quality not as good as hoped.
The news of increased production world-wide has had an impact on most major commodities. Although this has been a major talking point there will be concerns about quality. The EU for example has had major rains which have impacted flowering crops and we are likely to see significant downgrades. This will be a small shining light for the market and may see some premiums for quality grains locally.
The other shining light will be what happens to the Australia Dollar $AUD. There have been discussions that the $USD economy is doing well and that the US Fed Reserve is likely to increase interest rates based on sound economic conditions. However recently this has been taken off the table due to the Brexit and the impact it has been having. The full impact of Brexit will not be known for sometime.
On the other side of the coin we have seen the ASX post solid gains in the past 2 weeks of trade and some calling that the world economy is rebounding back to pre-global financial crisis with sound growth expected. All this is fodder for the $AUD. A better economic outlook for the US will likely see the $USD strengthen against most currencies despite the Fed Reserve not raising interest rates.
The Reserve Bank decreasing the cash rate in Australia by another 25 basis points which will have an impact on the $AUD in the near term. To see the $AUD trading sub $0.70 would increase local wheat prices $10/t just in currency moves alone.
Grain marketing in a potential low price year can be tough and that’s why people use Ten Tigers. There are numerous things that need to be considered. Here are a few that you may not have thought about.
How much grain do I need to sell before harvest – Cash flow can be manipulated so that contracts get paid to match the need. Your current expectation of what you need doesn’t mean you have to have all that money in October. Don’t sell grain before you need to.
Can my business sell post-harvest if needed – yes most years growers sell either pre harvest or at harvest and only a small amount post. This doesn’t mean you have to. Consider setting yourself up to sell a majority after if the opportunity is better. Your selling period can be from now till June next year.
Is it more cost effective to drawdown on reserve funds and sell later after harvest – what is the cost of doing this and does that outweigh the potential loss of committing to sales or being a forced seller when prices are not in opportunities.
What will the opportunities look like this year and how do I recognise them- this could be a challenge. $300 is an easy opportunity to see but is $260 a realistic opportunity this year? Experience, calculation and analysis will assist in spotting opportunities this year.
Talk to us if we can help.