ANZAC Day has been and gone, with growers across the country busy sowing canola, albeit in an increasingly drier topsoil. Apart from some regions in NSW and VIC, there doesn't seem to be too much relief for the next two weeks, with rain needed before aggressive planting can occur. In WA, although the first two months of the year have been within seasonal norms, most regions haven’t had a good drink in March/April. Temperatures have been as much as 3˚C above average, which has exacerbated the topsoil drying out. Despite this, moisture maps indicate there is good subsoil moisture over much of the grain belt. Although the break didn’t happen until late May last year, it is a trend that many farmers would like to see the back off!
Planting prospects appear to be favourable according to the latest BoM Outlook. There is a 75% chance of exceeding the median over the next three months in southern QLD and northern NSW. While elsewhere hopes of dry subsoil being recharged with winter rain appear unlikely. Over in the West things are forecast to remain average, whilst SA and VIC thinks look a little more gloomier with 35 – 40% chance of exceeding the median average.
But some of the longer-range models throw up some concern, potentially opening the doors of the possibility of El Niño developing as early as late winter/spring. Apparently 70% of two-year La Niña events are followed by neutral or El Nino phases. Four of the seven models BoM tracks are indicating warm conditions later this year. The SOI is well and truly in a downward trend with the April average of -7, this compares to +25 last April. Sustained positive values of the SOI above +8 may indicate a La Niña event, while sustained negative values below −8 may indicate an El Niño event. Values of between about +8 and −8 generally indicate neutral conditions.
New crop APW multi-grades are steady at $233 (WA $252), prices are a little firmer on recent futures moves but have been held back by stronger $A. But prices continue to be stuck in a tight trading pattern this year, basis also remains steady in April at -$13 under Dec ’12 futures. This compares to -$23 during Dec/Jan. Grower selling remains absent with some grower’s fortunate to be under rain last week sufficient to start planting in the north. But some forward selling may surface once the crop is planted and starts to emerge. Planted area is expected to be the same or lower than last year, due to current prices of competing crops.
Bulk shipments continue to grow in volume, with April wheat shipments estimated at 1.95mmt. Of this WA has shipped 752kt, SA 513kt and East Coast ports 641kt. Bulk barley exports are pegged at 430kt, canola 248kt, sorghum 80kt and lupins 25kt. May exports are forecast to be huge, so you would expect there would be significant slippage into June.
With GrainCorp’s stem looking solid, and WA exports also strong, there is chance that total wheat exports for the 11/12 (Oct- Sept) marketing year may hit a record 22 -23mmt. However a lot depends on Northern Hemisphere production and particular how cheap Black Sea offers will be. If any production hiccups occur (the spotlight is currently on eastern Ukraine, southern Russia and Kazakhstan), then demand for traditional exporters like Australia will continue its strong momentum. With back-to-back record crops, a strong emphasis will be placed on a busy export program to relieve as much pressure on new crop prices.
With international markets getting hammered with constant bearish new crop production and acreage forecasts, it could be a strong possibility come harvest, prices could be much lower then current forward prices are. Even if it turns out to be an average growing season in Australia, subsoil moisture in NSW/QLD should carry the crop through to the spring. Whilst strong old crop carry over will be a buffer for any production shortfalls. However the BoM alluding to a dry winter throws a cat amongst the pigeons, and you would tread cautiously in hedging too much volume (in cereals) so far out.