Rabobank Stefan Vogel

Costs and commodities – a look ahead at the grain market

The Australian dollar has weakened in recent weeks, making exports more competitive, but adding cost for imported goods like fertilisers.

RaboResearch general manager Australia and New Zealand Stefan Vogel said, “while we expect a continued weakness in the Australian dollar on a three-month timeframe as Chinese economic and commodity concerns weigh on our currency, we predict a strengthening again within 12 months – given Australia’s strong export performance has had positive implications for the country’s budget and the first budget surplus in 15 years might be even larger than earlier expected”.

Mr Vogel said the AUDs sensitivity to Chinese headwinds is currently being amplified by the view that RBA rates may have peaked as a softer-than-expected Australian July labour report has bolstered market speculation that the RBA’s official cash rate hiking cycle may be at, or near, an end.

“That’s good news for those with loans and, while the growth in farm land values has already slowed from the massive annual increases seen in 2021 and 2022, a peaking of the interest rates should allow for land prices to still fare well this year and in the years to come,” he said.

“Fertiliser prices globally have fallen 50 to 60 per cent from their 2022 highs and, while they still are above the pre-Covid price range, we are expecting them to find a price floor soon.”

Russian fertiliser exports are continuing to find their way to the world market, which is important given their sizeable share of global exports, Mr Vogel said.

“Demand from South America, India and other importers is being felt in the fertiliser market recently as those countries buy needed volumes as expected.”

Locally in Australia, Mr Vogel said, some challenges exist in regions where farmers aren’t able to find all the volumes they’d like. “Still, globally at least, we don’t expect a massive fertiliser price rally as natural gas prices – for example, in Europe – have been settling for months now at levels that allow urea producers to continue to operate their production.

“And on the grain production side, we see the strong demand for oilseeds also helping Australian canola prices to remain strong, while wheat and grain prices could keep alive the global excitement seen in July,” he said.

Mr Vogel said beneficial rains across much of the US corn belt over the past months – during the crucial period for yields – have calmed market fears about yields being significantly down and a potential US corn disaster, and prices therefore moved lower.

“For now, it seems the world in 2023/24 can produce the additional 40 million metric tons needed every year to supply the rising global population, livestock and biofuel sectors.

“The end of the Black Sea grain deal raises questions if the volumes of grain produced in Ukraine can flow into the export market, but we also see that Ukraine is very agile and has heavily diversified its export routes through neighbouring countries and through the Danube River. We expect Ukraine to be able to export at least 60 per cent of its surplus and likely even all of it. But it comes at an extra cost for the Ukrainian farmer as this alternative form of transport is expensive.”

Also Russia will remain a strong export competitor for Australia, Mr Vogel said, as grain yields there are good and, in addition, inventories from last year’s massive Russian crop also want to find their way into the demand centres around the world.

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