Moving into April this year, conditions were starting to look drier for many Australian crop farmers. Rabobank senior grains and oilseeds analyst Dennis Voznesenski said moisture which had accumulated from plentiful summer rains was starting to evaporate across parts of both the east and west coast, and weather forecasters were predicting drier conditions as far out as August induced by a likely El Nino.

“Northern New South Wales and southern Queensland saw considerable challenges with dry conditions right from the beginning of the year,” Mr Voznesenski said. “In north-western NSW, it became so dry farmers began cutting back planned planting, and around the town of Come By Chance, some farmers chose not to plant at all, surmising that it was not worthwhile risking the high input costs.”

Mr Voznesenski said up in the northern Western Australian cropping belt, rainfall has been very patchy since March. “While coastal areas in the Geraldton zone received average rainfall, further inland rainfall has been very poor, with some farmers cutting back planting by up to 20 per cent compared with expectations, and with the window for yield improvement closing very soon,” he said.

“With attention being primarily focused on the dry cropping areas in Australia – and with farmers restraining on selling as a consequence – this has led to local APW1 pricing trading at a premium to global levels.”

The Rabobank analyst said while it makes sense for prices in northern NSW and Queensland to trade at a premium in order to factor in the cost of drawing in grain from further south, there is – for now at least – less justification for local prices from central NSW downward to trade at any notable premium to global levels. “Crops in southern NSW, Victoria and South Australia are overall looking favourable – with too much rainfall becoming more of a problem than not enough in some areas,” he said.

“If we have another favourable year of Australian production, wheat prices should, in theory, trade at, or below, global levels,” Mr Voznesenski said. “The question becomes ‘when will that happen’. The answer will come from the farmer. For now, farmers are not selling … and prices are being kept higher.”

Mr Voznesenski said at the other end of supply chains, international business for Australian grain appears to be drying up, with other cheaper origins becoming more appealing. “International demand will not yield to Australia’s high prices – with northern hemisphere harvest ramping up and exports continuing to flow from other countries, there are options other than Australia.

“So, if rains keep coming, when will farmers decide to sell? For now, the financial position of farmers remains very favourable following two to three good seasons – so likely not yet,” he said.

“If we do have a good season in Australia, local wheat prices will once again mainly be influenced by global factors. If we put aside the enigma that has become the Black Sea grain deal, the price outlook globally will depend on seasonal conditions in three regions: Canada, Argentina and Australia. If all three end the year in a dry condition, the global price outlook becomes bullish for wheat – and vice versa,” Mr Voznesenski said. “While, in addition, the impact of US weather conditions on the country’s corn production will also have a say in influencing overall grain price levels.”

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