Monday, February 9, 2009

Grains remain resilient – Feed to grind higher

Grain prices have performed well over the past couple of months. Worries over Sth American production, an easing in Black Sea selling, intervention buying across Europe, increased Chinese grain buying and pockets of nth hemisphere winter crop dryness have all lent a hand. Locally, exporters seeking grain to meet early season commitments have had to compete hard to attract grain amid slow grower selling.

But over the next couple of months support from some of the factors above may ease. Sth American weather has taken a turn for the better and Black Sea selling should recommence entering March. In addition, north America will need to become more aggressive to reduce stocks ahead of the next harvest. This will check any rallies from Chinese buying or ongoing dryness across the US mid-west. Generally large wheat stocks should help allay any near-term supply fears.

The picture looks better later in the year. Growers around the world are likely to have fallowed more country this year after a heavy cropping schedule over the past two. This and lower input applications will see 2009 global wheat production fall significantly which will help offset any ongoing negativity from the Global Financial Crisis (GFC).

We expect feed grains to continue to grind higher. There is much less downgraded wheat around as first thought and given the spread to feed grains, unlike the last few years, most Australian wheat should find a home in milling or export markets. The sorghum crop will be keenly sought by east coast feeders. In the north, feeders will want to secure sorghum as a cheaper alternative to wheat. Meanwhile southern feeders are buying sorghum as growers across this region sit on their white grains until the season turns. Australian sorghum is now pricing itself out of export markets – local sorghum values have been rising as US corn values have fallen in recent weeks.

So, milling wheat prices may trade sideways for the next few months until they start trading northern hemisphere new crop conditions. Local feeding demand should see sorghum and feed grain values continue to grind higher.

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