Stefan 4778

Suez Canal attacks impact Australian grain flows, but not all is bad news

As we move into 2024, RaboResearch general manager Australia and New Zealand Stefan Vogel said, the grain market is navigating global fundamentals where supply seems sufficient, resulting in downward price pressure.

Last week, Mr Vogel said the US Department of Agriculture (USDA) reported in its monthly estimate that US and global grain inventories are strong and close to the maximum range of analysts’ expectations.

“In addition, the USDA surprised the market by raising the global 2023 corn production estimate by 13 million tonnes, due to an unexpected US corn yield increase and a massive uplift in the Chinese crop,” he said.

“On top of this, Brazil’s corn production estimates for the 2024 harvest were not cut as much as feared by some analysts while Argentina’s production is expected to rise more than 60 per cent from last year’s drought-hit volumes.”

So overall, plenty of feed grain seems to be in the world in the first half of 2024, Mr Vogel said.

“The only positive news for Australian farmers from the report was that the planted area for the next US wheat crop came in well below expectations allowing for some hope the crop –which will be harvested in June 2024 – might not be as plentiful as initially feared.”

Mr Vogel said another big current issue is related to the ocean shipping industry. “For containerised as well as bulk goods like grains, the shipping industry has to make tough decisions. Either to navigate the Suez Canal and risk severe attacks by Iran-backed Houthi rebels or take an about nine to 15-day detour around Africa’s Cape of Good Hope. In December, this saw a spike in bulk freight rates, but prices have already settled closer to the 2023 average again,” he said.

“For Australian grain, this means export logistics gain more focus. The canal issues might help our wheat and barley shipments to be slightly more competitive into destination markets in Asia, the Middle East and eastern Africa,” he said. “This is because our key competitors from Russia, Ukraine, the EU and even the east coast of the US will struggle somewhat to get to these destinations as they usually pass through the Suez Canal, while Australian grain does not have to go through it.

“For canola and our prime market in Europe however, Australian shipments will get more complicated and expensive, as they do traditionally pass through the canal, while Ukrainian and Canadian canola shipments to the EU do not.”

Mr Vogel said fertilisers used in Australia are largely imported in bulk. “And, at least for nitrogen and phosphate fertiliser supplies, they should not be impacted much as they mostly derive from Asia and the Middle East and don’t pass through the Suez Canal,” he said. “Potash, however, largely comes to Australia from North America and Europe and some of those shipments could be impacted by the attacks and re-routing of vessels.”

According to Mr Vogel, containerised shipments to and from Australia –  including imported plant protection chemicals and machinery parts as well as meat and fresh produce exports – will also be impacted. “The global ocean container freight index has doubled from early December to mid-January to reach the highest price level seen since October 2022. The good news is container freight rates are for now still three to four times below the massively Covid-inflated levels of 2021. Imported goods into Australia will have to bear the higher freight costs, but container freight is unlikely to get as expensive as in 2021,” he said.

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