Mecardo Analysis - Not to be missed charts
- By: "Farm Tender" News
- Cattle News
- Aug 16, 2018
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By Andrew Whitelaw | Source: CME, Mecardo
It’s been a rollercoaster month as the drought has started to really hit and the reality of a failed crop in NSW. It’s time to look at these prices from a historical & seasonal perspective. There are some charts in this article which are pretty much ‘off the chart’!
Seasonality can provide an indication of the performance of a commodity, in a similar way to deciles. We regularly use them to show how the market is travelling at present to previous points in time and at times, we can potentially view patterns.
In these seasonality charts, rather than use a min/max for the seasonality banding (green shaded area), we use a 70% range (or 1 standard deviation). The 70% banding is used to remove the extremes in the marketplace, and we believe this gives a better indication of the seasonality, as opposed to a min/max which can be extremely volatile. In these charts, we also overlay the average for the timeframe and the recent seasons.
At a global level, we have elected to examine the Chicago SRW spot contract (Figure 1). As we can see last week, the continuous contract hit its highest level since July’18 before losing some ground. The declining conditions in Europe and parts of the black sea are the cause of this rally since early July. During this year, Chicago futures have not yet breached the long-term average since the start of the decade.
The story is somewhat different in Australia. I have chosen to look at the pricing in two areas which are likely to produce average to above average crops.
The west coast has seen a 15% rise in the weekly average pricing since the beginning of July on the spot contract (Figure 2). This rise is has seen the price rise well above the standard deviation, well above the seasonal level for this time of year. The price rise is attributed to the ability to ship grain from WA around to Brisbane to meet the highly priced domestic market.
In Victoria, the wheat market is also clearly pricing into the northern feed market. The rise during the past month has been stratospheric, with the average weekly APW bid a whopping $70 higher than it was four weeks ago. This rise is so large, that we had to increase the range on the y axis.
Key points
* The Chicago spot contract has risen during the past month but remains below the long-term average.
* Australian prices have experienced a stratospheric price rise during the past month.
* The high grain prices are likely to lead to increased destocking.
What does this mean?
Prices are fantastic for producers, however, it is causing some strain on grain consumers especially pig producers. Economics 101 will tell you that high grain prices will lead to destocking.
There have been recent calls by federal members for increased subsidization to assist livestock producers to feed animals. However, government and donation assisted feeding only prolongs the issues and moves the goal posts out that little bit further at a macro level.
It strikes me that this will only prolong any issue and typically my advice is for government to stay well clear of markets.
NSW and QLD are largely now locking in a poor harvest and we have a long way to go until the 2019/20 crop so prices are liable to remain strong.
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