Market Update: Rabobank
Globally, whether we look at grains like wheat and corn or vegetable oils like canola and soy, there is a temporary glut of supply. Pressing down on wheat markets is harvest across Europe, the Black Sea and the US. For corn, a feed substitute for wheat and barley, there is a record harvest making its way out of Brazil.
For vegetable oils, canola harvest is coming out of Europe and the Black Sea and a record soy crop is coming out Brazil, and soon the US harvest. The current glut is supressing any price upside globally.
As we move further into year end the pricing environment is expected to become more supportive globally. Harvest pressure in the northern hemisphere will give way to supportive prices factors like reduced export availability from Canada, dryness in Argentina and instability in the Black Sea. Locally, ABARES June report pegs Australian total winter crop production this year (2023/24) at 45.9 million tonnes, an eye watering 34% down on last year, and 3% below the 10 year average.
Prices for domestic track and Free-In-Store APW1 wheat as of mid-August already climbed above global levels. A rising local wheat price in relation to global reflects two factors at play: firstly, local grain producers becoming more cautious sellers, but also domestic end demand (like flour and feed millers) becoming more willing buyers.
Buyers become willing to bid up the price of grain to avoid being caught short later in the year if production declines. Both the reduction in local supply of barley versus last year and the return of China is supportive of pricing. We expect local pricing of feed barley to trade closer to that of APW1 wheat compared to the last two years. We also expect the malt premium in coming years to move closer in line with global levels versus the past 2 years.
Local canola prices are driven more by international factors versus a local reduction in supply. Moving into year end and early 2024, we see two main supportive price factors: firstly, reduced production in Australia and Canada versus last year and secondly, reduced Canadian export availability due to a rising north American biofuel demand.