No relief from grain pain

Domestic feed grain users continue to pay considerable premiums relative to global markets, driven by ongoing production shortages.

Notwithstanding an easing trend in recent months, domestic grain prices remain historically high, challenging profitability for lotfeeders and graziers alike. On the other hand, shifting global trade dynamics - including the emergence of new production regions in Eastern Europe - have contributed to a global supply surplus.

Since the beginning of October 2018, feed wheat delivered Darling Downs has declined 12% to $405/tonne. Barley eased 13% to $382/tonne, while sorghum declined 19% to $345/tonne. Prices have risen significantly over a two-year period, with wheat up 73% since April 2017, barley up 74% and sorghum up 39%.

Domestic prices are elevated in contrast to international markets, as global production continues to outpace demand. The latest USDA World Agricultural Supply and Demand Estimates (released April 9) saw an upward revision of global wheat ending stocks for the 2018/19 fiscal year, to 276 million metric tonnes.

Due to challenging growing conditions, an increasing proportion of Australian production was required to service domestic demand during the last two years. Meanwhile, countries such as Ukraine and Russia have emerged as major suppliers to some of Australia’s key export markets. This shift will likely have significant implications for prices in the years to come, particularly when Australian grain production recovers to more typical levels.

If the 2019 cropping season proves fruitful, particularly in eastern Australia, grain prices could ease in line with international levels. Added to this, Australian exporters may have to compete with new lower-cost producers in some of their traditional markets, which may further compound price falls.

In terms of the outlook for winter, beneficial late-March rainfall provided a much-needed morale boost in some key grain production regions across eastern Australia. Despite this, major moisture deficiencies remain in most areas.

The most recent BOM outlook shows no strong indication of above-average rainfall for the coming months. As such, limited soil moisture may prove a major obstacle for grain growers who are hoping to plant during optimal sowing windows – and domestic users can expect grain prices to remain at high levels.