Friday, January 13, 2012

F1 remains steady, sorghum sinks.

After slowly creeping up in price over the last month, domestic grain prices sunk today  in the aftermath of the USDA report. The barometer of global grain prices US corn, production was revised higher then expected; while only conservative cuts (as was expected) were made to Sth American corn production.

Although wheat prices sunk between $8 and $11/t, the drop wasn’t as severe as international grain futures. This is turn helped lift basis (current cash over CBOT March futures), to the highest price for five weeks (+$17/t in WA and -$8 East Coast). However feed barley prices continue to be strong, with burgeoning demand from Saudi Arabia. The kingdom’s unusual supplier is the Ukraine, which usually supplies 60 - 80% of barley requirements. However with a severe dry period that has been in place in July, combined with expensive export duty has reduced competiveness of exports.

After a relatively slow start to the WA export program due to the delayed harvest, wheat exports are set to eclipse 1mmt in January. This follows 260kt in Oct, 327kt in Nov and 689kt in Dec. CBH continue to dominate the bulk exports with 42% of the trade, followed by Glencore at 12% and Cargill at 11%. On the east coast Australia is heavily booked (although still some spare slots in QLD) until July/August, making it tough for anyone who hasn’t booked a slot to participate in bulk export business. The higher Australian dollar isn’t helping in creating new export business, currently at the highest level for nine weeks. While the downturn in the euro economy has got the Australian dollar trading at its highest level against the euro (81.45) since its inception in 1999.

Sorghum bore the brunt from the fall out from the USDA report. After Brisbane prices briefly flirted with $200 port ($198 CQ ports), which was the highest price since the start of December, prices have now tumbled $10. New crop prices are now back at their pre Christmas levels. Good rainfall over sorghum growing regions over the last week may have also contributed to the price squeeze. Delivered new crop sorghum prices into Brisbane continue to be well bid with most of the trade on $196, while Toepfer is on the better money for Darling Downs at $176. Sorghum exports is set to average 68kt per month until May.

The continuing strong domestic and international demand for feed barley has made the commodity largely immune from any strong downside pressure. Track and delivered prices are trading at their highest level since the end of October. Grower selling in the north is likely to increase as growers look to clear space for summer crop harvest and add to cash flow to meet commitments. Malt market as is usually the case this time of year is only showing minimal premiums to F1. Malt prices may get some upside later this month, if some positions are squeezed due to Dec/Jan contracts being finalised. But I wouldn’t bet on it. F2 discounted around $30 in track markets. Southern demand is dominated by export commitments, which is supporting prices.

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