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Improved sentiment helps but grain is grim

Story Added : 05th February 2010

Despite a bleak fundamental picture, grain markets managed a mid-week rally as improved US economic data gave outside markets a shot in the arm. This created some spillover buying support in grain markets; which are again being seen as good relative value, despite a worsening supply situation.

With very few production issues on the horizon and stocks continuing to growing across the grain complex, it is hard to see these rallies extending too far. There will be plenty of physical selling on any decent rallies and given the gloomy medium term outlook, farmer hedge selling would likely step up if prices could manage a A$20-30/t lift from here.

Local growers should understand that the goal posts have shifted and that defensive marketing will be the order of the day in 2010. Make sure you understand 2010 production costs and be ready to revise hedge targets in order to ensure you survive the bottom phase of the cycle that we seems to be heading towards.

What will be planted?
Local growers are being faced with some unpalatable planting and rotation options this year. It seems like a long haul for wheat, and barley looks even more unattractive. Will this year see a move back to livestock where feasible or will we see growers look more towards oilseed and pulses? One farmer we spoke to this week who had just done last year’s finances reckoned his sheep enterprise outperformed his cropping enterprise last year.

While the jury is still out on Australian plantings, elsewhere growers have already made decisions. With nth hemisphere yields looking good, it will be the plating decisions of nth hemisphere farmers that will most likely sway our grain markets this year.

Europe moves to wheat & oilseeds
IGC recently estimated European winter wheat plantings to have increased by about 1%, mainly at the expense of barley, to about 23 million ha (vs 22.8 million ha in 2009/10). More wheat than last year is expected to be sown in France, Germany, the UK and the Baltic States.

Black Sea wheat plantings this year are estimated at 33.5 million ha (vs 34.1 million ha last year). Of this, only about 13 million ha of Russian spring wheat is yet to be planted.

The main casualty has been barley. Europe is expecting a contraction of around 5% in winter barley; less has been shown in Russia as well, although Ukraine area is expected to be up a little.

Strategie Grains recently estimated that European spring plantings could also fall by 7%. But this could turn out to be conservative with barley seed sales well lower and European farmers buying any seed but malt barley. Larger expected European and US corn plantings will help compensate.

Larger corn, bean and spring wheat plantings
It has been well documented that winter wheat platings in the US have fallen off the cliff (down 14% to 15 million ha – the lowest since 1913). In addition to a shift in area to corn, it is likely that area will be planted to oilseeds and spring wheat will also rise.

Canadian farmers undecided Agriculture Canada suggested
the area planted to pulses across Canada this season could rise by around 9%. Most had been anticipating an aggressive rise in Canadian canola plantings this year because of favourable relative gross margins. However, this may not be the case. Ag Commodity Research said this week ‘we are starting to get the feeling that rotation issues could be a bigger concern this spring as farmers have really pushed canola acres the last two years.’

A 9% rise in Canadian pulse plantings would make a large rise in Canola plantings unlikely, unless there was a steep drop in cereals. Much may depend on the timing of the break. Lower Canadian canola plantings (Canada controls 60% of world trade in Canola) would open the door for a larger Australian plant with an early season break (bold).

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