In 2018 we saw a 30 per cent increase in the value of Chicago Board of Trade (CBOT) wheat futures in Australian dollar terms and domestic values have responded with Newcastle APW wheat firming 60 per cent year-on-year. Strong premiums have been built into domestic markets, reflecting the east coast feed grains shortage and in turn supporting local values at levels above export parity.
If widespread rain eventuates in 2019, subsequent pasture rejuvenation and a move by livestock producers towards restocking may result in reduced demand for feed grains. However, even with rainfall, the severity of the east coast feed grain deficit makes it difficult to see any meaningful changes to domestic supply and demand pressures until late 2019.
Barley markets have followed a similar trend to wheat in 2018, with Port Adelaide feed barley values up 45 per cent year-on-year. China’s recent anti-dumping investigation into Australian barley exports has brought an air of uncertainty to barley markets. While these claims are not expected to be upheld, China is a significant trade partner accounting for 75 per cent of Australia’s barley exports in the 12 months to October 2018. Continued access to the Chinese market will be a key determinant of barley values in 2019.Ad - Get your Seeder set up the right way. Contact Air Seeder Consulting Services and have your Seeder running right before you start - Ad
Oilseed markets, and soybeans in particular, remain weighed down by the uncertainty of the China – US relationship. This pressure has also spilled over into global canola markets. In 2019, we will be paying close attention to growing season conditions in Europe and Canada, which account for a combined 55 to 60 per cent of global canola production.
In pulse markets, Indian import tariffs remain a key challenge to values. Australian trade officials in India see no easing of trading restrictions until the end of 2019 at the earliest. Although Australian chickpeas have been able to find homes in alternate export markets (including Pakistan and Bangladesh) burgeoning global stocks of lentils have driven strong competition in export markets. In the absence of opportunities into India, lentils continue to price as a protein source in domestic feed rations. Domestic feed markets also continue to underpin values for lupins and field peas.
Faba bean values shot to new heights in 2018, reflecting strong Egyptian demand for Australian product against a backdrop of poor production globally. We expect Australian values to ease in mid-2019 following the harvest of the new season crops across Europe.Ad - Get your Seeder set up the right way. Contact Air Seeder Consulting Services and have your Seeder running right before you start - Ad
In summary, domestic feed markets are expected to be the key driver of values in 2019. An estimated 3.5 to four million tonnes of grain will be brought in to the east coast from South Australia and Western Australia over the 12 months to October 2019, in order to meet domestic demand ahead of the 2019 season crop. A return to average conditions would see an Australian wheat crop in 2019 of 24 to 25 million tonnes, a 50 per cent increase on the 2018 season, but five per cent below the five-year average. Notwithstanding any significant developments in offshore markets, we would expect the current price environment to continue into late 2019 when the new season crop, if successful, may bring some supply side relief to the domestic balance sheet.
The Indonesia – Australia Comprehensive Economic Partnership Agreement is expected to come into effect by 2020. This will include provisions for duty free imports of up to 500,000 tonnes of feed grains from Australia to Indonesia, increasing by five per cent annually. While Indonesia has typically been an important trade partner for Australian milling wheat, Indonesia consumes 17 to 18 million tonnes of feed grain annually. For this reason, feed grain markets in Indonesia could present a significant opportunity for the Australian grains industry over the longer term.