Australia: Prices high in spite of good crops

Global grain prices spiked last week when the combination of a worsening drought and wild fires prompted Russian Prime Minister Vladimir Putin to ban exports of his country's grain from August 15 until the end of the year, The Weekly Times Now commented on August 11th.

And widespread rain across the southeast Australian grainbelt has lifted hopes of a bumper local crop.

The wheat price dipped slightly early this week, but remains $40-$50 a tonne higher than two weeks ago.

News of damage to Russian crops prompted Rabobank to revise its estimate of global wheat production to 644.2 million tonnes, about 16.9 million tonnes lower than the US Department of Agriculture's July forecast of 661.1 million tonnes.

Crop problems in Russia, parts of Europe and Canada should see the world's population eat into the huge wheat mountain which has dampened grain prices for much of the past 12 months.

Chicago Board of Trade first contract wheat futures prices surged to two-year highs of $315 a tonne as soon as Putin's announcement was made but had dropped back to $287 a tonne by Monday.

Futures prices have now risen $114 a tonne since they bottomed out on June 9.

In Australia, January 2011 east coast wheat futures have risen to $291 a tonne and barley to $276 a tonne.

Grain traders said while Victorian and NSW growers were much more upbeat than earlier this year, they were reluctant to lock into prices while the threat of locust damage remained.

The surge in grain prices comes as good rain falls on southeastern Australian crops.

Fourth generation Mittyack farmer Gordon Trigg said this season's crops were the best he has seen in nearly 40 years of farming.

"I've got some barley and wheat crops that are looking quite magnificent," Mr Trigg said.

More good rain is expected to hit Victoria's grain belt this week.

Reports from Russia said the worst drought in 130 years of record-keeping had devastated the country's spring wheat crop.

Neighbouring countries and modest exporters Kazakhstan and the Ukraine were also suffering from dry conditions.

Rabobank has revised its forecast of the Russian wheat crop to 45 million tonnes, or 15.8 million tonnes smaller than last year's crop.

Rabobank said the total Russian grain market would be in deficit this year, putting a big strain on its livestock industries.

It said Russia had been building up its chicken and red meat industries in recent years to reduce imports.

"We believe that low feed grain availability has been the primary driver behind the calls for a ban on grain exports," the bank said.

Emerald Group Australia commodity pricing general manager Chris Kochanski said the Russian feed shortage was also driving global barley prices upwards.

Mr Kochanski said feed barley was now trading at a $25-$30 a tonne discount to wheat, whereas two months ago, the difference was about $50-$60 a tonne.

Global malting barley prices have also risen in recent weeks.

Mr Kochanski said malting barley prices in France had recently skyrocketed and in Australia, they were now about level with milling wheat.

"Barley is the untold good story," he said.

AWB Limited commodities general manager Mitch Morison said the rise in grain prices boded well for Australian stocks of last season's wheat.

Mr Morison said after initial interest in Australian supplies last week, buyers pulled out of the market when prices skyrocketed.

He said speculation over future price rises should result in buyers returning to the market to shore-up supplies of Australian wheat.

Mr Morison said that while Russian wheat was of lower quality than Australian grain, the flow-on effects of Mr Putin's export ban had created excitement in the market.

"There will be a shift from markets that are price conscious back to (higher quality) US and Australian wheat," he said.

"This (Russian export ban) is a good shot in the arm for old crop (Australian) wheat."

AWB Limited responded to the upwards spin in wheat prices by lifting its estimated pool returns for all grades by $43 a tonne.

The pool return for Australian Premium White wheat is now forecast at $333 a tonne.

11 August, 2010