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Over the last four weeks, global grain markets have featured an extreme level of volatility due to events in Russia and Turkey. Last week’s USDA update of global supply and demand statistics has confirmed the upcoming year will be globally tight due to an extremely dry spring in Russia. However, Turkish authorities took the decision to throw cold water on the global rally by announcing a wheat import ban. Closer to home, WA has received much needed rains while calls for La Nina continue but extend further into the future.

Chris Nikolaou 16 May 2024

China, one of the world's powerhouse economies, has been making headlines of late due to a pullback in its real estate and stock markets. This economic downturn is combined with a population that has been slow to come out of the Covid-19 lockdowns. Consequently, consumer price deflation is creating headwinds for the persistent growth that China has experienced over the past decades. However, amongst the economic slowdown, commodity imports remain resilient which is positive for Australian grain growers.

2023 has been a volatile year for commodities markets. Although the war in the Black Sea continues, Ukrainian supply has slowly returned to the market. This has led to an overall decline in grain prices since this time last year. The world’s consumers have benefitted, but is the tide about to turn? If 2023 was the year of the consumer; will 2024 be the year of the producer?!

The 2022/23 marketing season has now come to a close. Overall, the Advantage structured marketing programs have performed well through what was a volatile season. Ongoing war in the Black Sea, a tough finish to the U.S. corn crop and poor rainfall late in the Australian season all led to a late-season spike in local grain prices. Growers in the Advantage 10 month program benefited from this in the September – October pricing period. As expected, China has re-entered the market as a strong buyer of Australian barley since the import tariffs have been lifted. China also continues to buy Australian wheat at a pace that is not as sustainable as the purchases during recent higher production years. The canola market is still down from the start of the season but a recent uptick in pricing may suggest a turnaround is on the cards for the overall oilseeds markets.

On the whole, Australia has been blessed with three strong years of grain production from 2020 through to 2023. However, after a promising start to the year and with many areas of the country holding good moisture profiles after a wet summer, the last three months have turned dry. Most areas of the national growing belt are experiencing 50+ mm deficits in rainfall for the July to September period. Why the big change and what are the weather patterns driving this current dry spell?

China lifts import tariff, August WASDE report bearish corn, neutral in wheat and supportive to soybeans, Russian and Ukraine conflict escalates.

The Black Sea conflict continues to create uncertainty in agricultural markets as proponents of the Ukrainian food corridor look for a last-minute agreement to extend the supply chain. Weather challenges to the growing seasons in the United States and Canada have increased market volatility since the start of June with canola being the main beneficiary. The BOM maintains a concerning outlook for winter and spring weather in Australia. Read the full update here!

Over the last month, we have seen excessive rainfall in China in the lead-up and during their local wheat harvest. EU winter crops and Russian spring wheat are all experiencing a hard finish to their growing season. Closer to home, Aussies brace for a possible impact from the El Niño alert issued by the Bureau of Meteorology (BOM).

Advantage Grain Pty Ltd has announced its entrance into the grain export market, with the company’s first wheat vessel loaded and on its way to the Middle East where it will be used for flour milling.   Advantage Grain General Manager, Chris Nikolaou said the company’s foray into the grain export market marks a significant milestone for the company.

On Friday, May 12th the USDA updated the world agricultural supply and demand tables. This included the first estimates for the 2023-24 season. Wheat was viewed as bullish as the global carry-out is estimated to fall this coming year. Of note was the decline in U.S. production as drought-hit Kansas is expected to produce the smallest crop in over 50 years. Global production estimates all rely on weather performing over the coming months in key production areas of Russia and Canada for wheat and the United States for corn and soybeans. A tightening wheat balance sheet does not leave room for any further production issues in other major exporters

March 2023 saw continued turbulence in global commodity and capital markets. Ongoing economic uncertainty, geopolitical tensions, and concerns over inflation and interest rates were among the drivers of market volatility. A steady stream of headlines relating to global weather and crop conditions, the continuing flow of low-cost Black Sea origin grain into the global market and light at the end of the tunnel after a three year Australian barley export tariff into China saw agricultural markets respond accordingly.

Activity in grain market influences such as the global economic landscape, domestic export pace, demand and weather, continue to dominate chatter in the industry. However, despite the backdrop of a high interest rate, deflationary environment and declining international grain values, Australian grain markets have shown great resilience over the past month. This is a credit to our record export pace, the expected change to the 2023/24 season climate outlook and increasing cattle on feed numbers as a result of weakening livestock markets.

Grain market volatility continues to be a defining trait of the markets. The Ukraine conflict is ongoing with another round of food corridor extension talks commencing. Over the last six months, drought in Argentina has impacted their wheat and soybean crops and now threatens their corn crop as well. On a more positive note, Australian relations with China are improving and the industry is hopeful for a renewed barley market. Locally, Aussie growers have managed through an extraordinary harvest with extreme weather, a late finish and a slightly better than expected product.

Over the course of the 2022 grain marketing year, we have seen extreme volatility in grain markets. Grain markets exploded in March of this year when Russian forces entered Ukraine and hostilities commenced. Three months later, a safe grain corridor was negotiated for Ukrainian grain between the UN, Turkey and Russia which is set to expire this month. Additionally, the US experienced a drought that decreased their production of wheat. At home, excessive rainfall due to a trifecta of weather patterns has had a severe impact on crop outlooks for NSW. Throughout the 2021/22 season, Australian grain was in high demand globally and this is expected to continue into the 2022/23 season.

Global wheat markets have surged higher with the U.S. and Black Sea facing production and logistics issues. The conflict in Ukraine, which appears unable to be de-escalate along with expensive U.S. wheat, will ensure strong demand for Australian production. At home, we’re looking at another big winter crop, and although it looks like the La Niña weather pattern will present challenges over harvest, all grades of Aussie wheat look like they’re set to achieve strong values on the global market.

What a difference a week can make! Since Russia and Ukraine signed the UN brokered Food Export Corridor deal in July, we’ve seen reduced market volatility compared with the first half of the year. However, last week we saw how sensitive these markets are to possible changes in this agreement and how world wheat supplies are still struggling without adequate Ukrainian products. Closer to home, Australia is looking well set up to reach a forecast production of 55MMT, the fourth largest on record, with favourable weather set to hit key production areas during the vital spring growing period.

An ongoing strong La Niña has led to wetter than normal conditions in Australia and dryer than average conditions in the United States and the growing regions of South America. Western Europe is also struggling with dry and hot conditions. Australian exports continue at a strong pace while the market switches focus to the outlook for new crop locally.

Extreme volatility continues in offshore markets as the world grapples with the lack of Ukrainian supplies while elsewhere in the northern hemisphere, wheat harvest is in full swing. Closer to home Australian exports for the season continue to show good pace in spite of pandemic challenges to supply chain and weather-related setbacks. Current outlooks for a return of La Niña in the spring and the Indian Ocean Dipole status offer hope for a positive year for Australian producers

Over the course of 2022, we have witnessed extremes in grain markets. Ongoing conflict in Ukraine has removed 75% of that nation’s grain export capabilities. Ongoing hard seasons in North and South America have been unable to produce large enough quantities of grain and oilseeds to repair the world’s supply. This has created extremely volatile futures markets. This volatility is set to continue as the U.S. enters their summer growing season with a heat wave this week. Closer to home the BOM updated their outlook on June 9th calling for a wetter than average winter. Although, there are some growers who would like to see a dry spell.

As the Black Sea conflict enters its third month, global consumers of wheat look to other producing origins to make up for the lost Ukrainian supply. Consequently, normal suppliers such as Australia, Europe, Argentina and North America have seen an uptick in demand. Interestingly, India has stepped in as an unlikely supplier to the world for its food needs. However, this supply may be short lived. La Niña driven weather continues to make for hard seasons in both North and South America. Australian growers commence their growing season in largely strong conditions; however, not all parts of the country are enjoying supportive wet weather.