Dramatic impact on global grain prices

26.07.2017

Wheat and barley prices are showing price volatility at levels not seen to this extent for three years, both domestically and internationally.

The 2016/17 harvest saw 10 year lows in grain prices, while the month of June and into July saw a rally of up to 30 per cent.

Arguably, the cause of this rally can be put down to three interconnecting factors; global weather, global supply and global demand.

Why do these factors have such a dramatic impact on global grain prices and what does it mean for Australian domestic and international demand?

First, let's look at the current global weather. Producers in the Black Sea and Europe have experienced a drier and warmer than usual season.

France is at approximately 75pc of their annual rainfall for the season, Italy at approximately 77pc and Spain at 66pc.

Since the Australian planting window opened, the majority of the cropping belt has experienced below average rainfall resulting in unfavourable growing conditions, less planted acres and yield penalties.

These global growing conditions have caused expected decreases in global wheat and barley production for the first time in five years.

When there is a decrease in global production the demand for grain needs to be rationed, therefore typically, prices rise.

Those who really need the grain will pay a premium to secure it, and those who can hold off for now, will.

This causes global price rallies to occur.

The same scenario occurs in domestic grain markets.

When Australian production decreases, demand needs to be rationed and local millers and feed producers usually pay a premium to have their needs filled before grain is exported away from Australian shores.

Naturally, this also works in reverse as seen in Australia's record 2016/17 season where there was so much grain it didn't need to be rationed, it needed to be moved.

The increased supply of grain, pushed prices to lows not seen in 10 years.


farmweekly.com.au

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