Tuesday, December 13, 2011

Yield Prospects Improve for Sorghum

Wide spread rainfall over much of sorghum growing regions continues to pressure new crop sorghum prices on prospects of further late plantings. Brisbane track is bid at $188 (LDA & AWB) and $4 discount for CQ (AWB & Viterra). Old crop track prices are at a slight premium, with the trade appearing comfortable with stocks ahead of increased export program over the coming months.

Delivered cash markets into southern QLD have firmed with one buyer in the market bidding for Dec into Brisbane at $225 and $210 Downs, whilst other buyers some $10 discounted. Current delivered prices are trading parity with SFW wheat and F1 into the Downs. New crop Brisbane track prices have come off $9 to $190 (Pentag), with the Downs at a further $20 discount.

With prospects increasing for a favourable harvest next year, and the eastern states silos bursting at the welds under back-to-back bumper crops (mainly feed grain), price hikes rest on expanded export sales. Perhaps grower returns will be enhanced by greater yields at the expense of any price hikes. And although prices have averaged $210 over the last 10 years, there is strong grower reluctance selling at these levels, especially after prices averaged $225 in 2011.

Harvest is winding down in NSW, with Graincorp estimating that northern regions at 90%, central 70% and southern 80% complete, while some pockets in these regions may be still stripping until after Christmas. Selling pressure from the grower is drying up as prices for APW creep lower to $200 port. A price that has not been seen since July 2010, before price took off due to Russian dryness and subsequent export ban. Will it be a crash in the dollar (fallout from EU debt crisis), production hiccups in 2012, or even a drought in Australia (after experiencing the sixth consecutive year of higher production for the first time) that will drive prices higher in 2012? Or will burgeoning Chinese and East Asian demand provide an outlet for high stocks (not to mention the 9mmt of old crop carry over) in delivering some pricing support.

Although a lot of wheat has been downgraded, adequate supplies of milling quality are available to meet domestic and forward export commitments. The trade generally is comfortable with current ownership for milling commitments, although some premiums do exist in both track and delivered markets across the region. As a result track prices for milling grades continue to ease, while lower protein grades are resisting further downside.

The middle of last week APW2 broke its two-month trading range ($238 - $248) in WA, with values plummeting further on Tuesday to $229. The $7 decreased in basis, has wheat at its lowest level since May 2010. More rain on Monday night, with the heaviest rain (up to 70mm) falling in the central Albany zone. While rainfall tapered off further north. Wheat was only 30% complete in the Albany zone; with more falling number machines have moved into the zone. AGP and FED1 segregation have opened up at most sites in anticipation of widespread damage.

Due to last week’s heavy rain, receivals have slowed with only 1mmt being received into the system, down from 3mmt the week before. Total to date has been 9.2mmt, which CBH is estimating makes up 68% of the harvest. Geraldton has received 2.85mmt (+450kt for the week). For the rest of December, 270kt of exports are expected which will free up some more storage for the expected 3.2mmt. Wet weather slowed receivals into the Kwinana zone, with only 800kt for total receivals of 3.9mmt, representing 65% of expected output. Albany 1.27mmt (+100kt) with quality now being a major issue. Esperance 1.1mmt (+200kt), which is 75% of expected deliveries. 

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