Global grain production: Soft dollar insulating growers

22.03.2017

AUSTRALIAN growers have been buffered against poor global grain prices by the lower Australian dollar, and this will remain the greatest hope of maintaining profitability for the coming season.

That’s according to the Chicago-based analyst and president of AgResource Dan Basse, who was in Australia last week speaking to farmers.

He said the increase in global production in the past decade was driven by the increasing incomes in Asian countries, including China.

It means Asian consumers can pay for more grain in their diet while biofuel policies are creating incentives to grow corn and other crops.

Mr Basse said the global grain oversupply would have a lasting impact on prices.

This is despite forecasts US farmers will plant their smallest wheat crop in over 100 years, and switch to corn and soy, which are more profitable.

“US farmers who have planted wheat for the past two years have been looking at losses of about $US100/acre (about $US247/ha),” he said.

US farmers have felt the full brunt of decade-low global grain prices as the greenback has remained strong.

However other wheat exporting areas, such as Russia’s Black Sea region and South American countries, have had lower currencies and are still relatively profitable so have no incentive to reduce plantings.

Mr Basse said Russia’s wheat plantings were about 5 per cent up on last year’s record crop.

“The Black Sea used to be the world’s biggest importer, but today they are the world’s largest exporter and they still have another 30 million hectares that can be brought into production,” he said.

“And at the moment South America is harvesting a record crop. There is an abundance of grain everywhere you look.”

China is another part of the global picture and is likely to want less imported grain, after the Chinese Government implemented measures to try to draw down on domestic grain stocks rather than importing.

Several years ago barley exports to China jumped more than 80 per cent and in 2014 China imported 5.41 million tonnes of Australian barley. This put a floor under local barley and sorghum prices.

“The (Chinese) Government is telling us they may cut corn sowing from 3-5 per cent in the upcoming spring, so it will have an impact,” Mr Basse said.

“It will probably take six to nine years for the Chinese to liquidate their stocks and get back into a position and be a more reliable grain buyer.”

Mr Basse said global grain stocks were so high it would take a “dramatic drought” in a major production region such as the Black Sea, but even then the impact might be limited.

“The Australian dollar has been weak enough to help translate (Australian crop production) into profitability for the grain and livestock sector,” he said.

Last week the Australian dollar was trading about US75.5-76c, but has fluctuated, from US71.76 in December to US77c last month.


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