Australia: North consolidates at drought levels

Another dry week in the northern region has seen barley and wheat prices consolidate at levels last seen in the drought years of 2018 and 2019.

While Australia’s barley export program to China is reanimating follow the removal of tariffs, traders do not expect it to divert vessels booked to bring Western Australian barley to Brisbane to fill the regional deficit expected to continue up to next year’s harvest.

Widespread rain over south-eastern Australia in the past week has consolidated yield prospects for the time being, but crops in low to medium-rainfall zones will need more in coming weeks of spring.

Growers in southern New South Wales and the Victorian Mallee are eyeing the premium the north is paying for wheat and barley, and are therefore reluctant to sell stored or new-crop grain for local delivery.

They also have production concerns, which have crept south from the Queensland-NSW border to central NSW in recent months, as the El Niño Alert remains in place and points to a hot and dry spring.

Table 1: Indicative prices in Australian dollars per tonne.

Grain prices in the northern region have reached highs seen in the drought years of 2018 and 2019, and offers are trying to drag the market higher.

Feedlots with elastic demand are beginning to question the economics of paying these prices as cottonseed and hay values climb also, which indicates the market may have hit its high point.

Wheat delivered Downs has been offered at $480/t for January plus carry as traders and growers calculate based on tight supplies until harvest rolls into the southern half of NSW in November.

“Once we get into harvest, we might get a bit of price correction,” one trader said.

“The prices are equivalent to the heat of 2018-19, and there are certainly production concerns in north-west NSW. “

“Liquidity is low; growers have shut up shop on selling.”

Crops on the Liverpool Plains of inner north-west NSW are mostly in good shape, and may produce an export surplus.

Tonnage from average or better crops in and east of the Moree and Narrabri districts is largely expected to be consumed by domestic flour or feed mills.

In Qld, the wheat export program is expected to go largely to the premium high-protein market in Japan, and panamaxes of run-of-the-mill wheat to destinations like China and Vietnam are looking decidedly unlikely as the dry finish bites.

Central Qld is expected to start its wheat harvest in mid-September and traders are expecting tonnes off the header will be gobbled up by domestic consumers.

The cutting of some crops for hay, with reports of barley crops in particular being dropped on the Downs and in the border region, is tightening supply prospects further.

“Growers know that if they take some of that barley through to grain, it will be pinched and have a low test weight.

“It makes more sense for them to cut it for hay and get $400/t for it.”

One trader said the continuation of WA barley coming into Brisbane proves an open hand from Australian exporters should China again, heaven forbid, question the pricing.

“If they’re bringing it into Brisbane, it shows the domestic market is paying the same as the world price.”

The drawing arc for barley delivered Downs now extends into Victoria, with Mallee grain being trucked into Qld at a freight rate of around 8-9 cents per tonne per kilometre.

While pockets of Qld including the Condamine and parts of the Maranoa are looking at above-average yields for wheat and barley, most are looking at average yields at best.

The protein outlook is questionable, given three big-yielding years and a nitrogen deficit because of a combination, over the period, of high urea prices, overly wet conditions and then tight urea supply.

Cottonseed prices remain firm on dry weather and domestic demand.

“At current values we are not export competitive, and market pricing moving forward will likely to dictated by weather,” Woodside Commodities managing director Hamish Steele-Park said.

September prices for cottonseed ex gin are currently at $550/t Moree and the Namoi Valley, and $600/t  plus delivered Downs.

New-crop seed values are at an inverse to current crop of $70-$80/t in northern NSW,  with the Moree region at roughly $470-$480/t.

“Ginning is still going in all valleys, with the Namoi expected to finish soon, but the Gwydir valley will be going into October.”

Falls in the past week of 10-25mm have consolidated yield prospects for many crops from South Australia’s Eyre Peninsula to southern NSW.

That included a strip of unseasonal hail in the Junee region late Tuesday afternoon that will result in some yield losses in canola in particular.

Peters Commodities Riverina-based trader Peter Gerhardy said dry conditions in the north were exerting their influence further south each week.

“There’s a real division: the northern market is starting to drive central NSW and the Sydney and Newcastle markets.”

That is being seen in the Sydney market for ASW wheat being $30-$35/t above Melbourne values.

“As every day goes by that line from east to west that separates the season moves south.

“Now it’s down around Parkes and Dubbo.”

Mr Gerhardy said crops from the outer slopes of NSW through to the Murray-Mallee of South Australia are at varying stages of development, depending on sowing time and rain since.

“By mid-September, we need another rain.

“If it stopped raining now, there’s no way the crop would get home.”

He said the northern market was driving pricing ideas for barley in southern NSW and the Mallee.

“I don’t think China’s having an immediate impact.

“Grain works from here heading north on to the Downs, when normally Riverina grain all heads to Melbourne.”

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