Mecardo Analysis - Victorian Barley to hit $300 by Christmas according to….
- By: "Farm Tender" News
- Cattle News
- Nov 20, 2018
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By Andrew Whitelaw | Source: Mecardo, Grainpro.
On Saturday I read with great interest an ‘analysis’ piece from an industry participant. This grain trader/broker has called for F1 barley prices to fall to between A$300-320 in Victoria before Christmas. I thought it was opportune time to look at pricing and see how likely this prediction is.
The trader/broker (Grainpro) had written on their weekly update that barley would in Victoria drop to A$300-320 before Christmas, a mere 36 days away. This is a big call, and I wonder if this is a case of talking their own book.
Firstly, let’s look at where we currently are. At present, Geelong F1 barley is pricing at A$378 (Figure 1), which is a considerable drop (A$46) since the start of October, albeit pricing remains at very strong levels. However, a fall to A$310 would require prices to fall more A$1.97 per day on average between now and Christmas. This is a 23% fall in the next 35 days.
One of the justifications of this forecast was that pricing in Victoria had to be better than transshipment from Western Australia. At present, Kwinana F1 barley is trading at $305 (Figure 2), and transshipment to the east coast is around A$80-100. At the bottom end of the scale, this would place F1 barley onto the east coast at A$385-405.
The commentator also pointed out that consumers are substituting wheat for barley if the spread is sub $20. This is not a new occurrence, many consumers of grain, especially in pig and poultry, will reduce barley requirements if it is sub $30 spread due to the lower nutritional value. However, a fall as significant as quoted would result in wheat prices falling in tandem – as barley is not in a vacuum.
At present, it is unlikely that we will sustain falls to the $300-320 by Christmas due to the lack of feed supplies this season.
It is important to note that in the past 24 hours, China has launched an investigation into the Australian industry for selling barley at artificially lower prices (dumping). If this update had been sent out after this news, I would have more deference for the commentary; however, at the point of publication, the bearish factors were not strong enough to call for a fall to A$300.
The Chinese investigation will have some impact on pricing in the near term, albeit more so in WA. Nonetheless, the feed deficit on the east coast will limit the ability for the market to fall to the A$300-320 level.
Key points
* Geelong barley pricing is currently at A$378
* A trader has forecast that barley prices in Victoria will be A$300-320 by Christmas.
* Prices are likely to come under pressure as a result of the Chinese investigation into alleged dumping of barley.
What does this mean?
It is not surprising to see a decline in pricing as we go through ‘harvest pressure’ as growers commence the bulk of their marketing program. It is however unlikely that prices will fall as considerably as the trader has forecast in Victoria, based on the factors which they had identified.
That is not to say that there are no downside risks, however, these are limited by the domestic feed deficit in eastern Australia.
It is important when reading ‘analysis’ from the industry that you are aware of any bias and ensure that you avoid commentators who are ‘talking their own book’.
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