We all know what lack of precipitation does to crops and pastures, but what does it do to markets?
It’s seasons like this, with the monotony of ‘perfect weather’ (in a recreational sense) comprising warm easterly zephyrs complete with cloudless skies, which patently display that too much of anything can be bad for you.
If you have a headache, take ibuprofen. But take it every day for months and you might find your gut won’t like you – hello ulcers and maybe worse. In short, your body gets out of whack.
The obvious aspect of having cloudless, warm weather is the lack of soil moisture but, as a result, markets are also getting out of whack. Below are some examples:
Whacky 1: East coast vs west coast grain basis.
Want to buy a tonne of feed barley to feed the sheep? If you are in Esperance, then that will have cost you $345, as per transactions on Clear Grain Exchange mid-April. Just across the Nullarbor on the Eyre Peninsula in SA, a region that is very similar to the Esperance Port Zone, the same spec tonne of barley cost $305. That’s $40pt of whackiness. Why? Both Esperance and the Eyre Peninsula are export markets and, from a Chinese buyer perspective, there is no difference. But if you are a marketer with booked shipping slots in Esperance vs Port Lincoln, buying in the competitive Esperance zone is tough and you need to pay more to prise unsold tonnes. Over East, there are more tonnes to buy, so less stress finding a seller.
Whacky 2: Empty silos
Due to WA’s peculiar agronomic factors, (eg, we don’t grow winter wheat in winter as our winters are so warm, only spring wheat works, go figure…) we are limited to specific commodities for our domestic industry. Sitting front and centre is that odd speckled bean called lupin. Nowhere in the world other than Australia is lupin the primary source of protein for ruminant feed. For most parts of the world, soybeans are the main fare, but Australia’s plantings of soy are best described as ‘niche’. Luckily, we produce plenty of that lupin stuff – so much that we can export it as well. And export it we have. By the end of March this year, CBH had already poured into ships the amount they received last harvest. Some domestic users, who have been comfortable in the knowledge that there is always enough to go round and bought just in time, are tapping silos around the wheatbelt, hoping someone has a few tonnes hidden away.
The same goes for oats. WA has hundreds of thousands of tonnes of oat processing capacity for export food markets and the days of viewing oats as sheep feed are akin to the Victorian era when oysters were considered a lowly food for peasants.
As a result, both oats and lupin are well over $500pt – if anyone has any.
Whacky 3: Feed availability
Milne customers are patently aware that there is no forage left on the ground. Over on the east coast however, most pastoral areas received a hefty dose of moisture during March that kept the drought monster at bay. But not so much that east coasters are in restocking mode, just enough to be comfortable.
They aren’t really clambering for WA animals despite WA farmers being keen to sell. Sheep transfers have been ramping up over summer but are still well below the record 2019-20 years – and even falling back a touch in March (but ironically most likely due to floods impacting supply chains across the Nullarbor) - and the WYCI and EYCI have diverged to a 150 spread (the biggest in years) as the West drop their pants to make cattle more attractive.
Whacky 4: Next harvest
Although it's neater to use the rule of three, because we are talking about imbalance, we will push this article over the edge with a fourth piece of whacky: seasonal sowings.
With a good season break, growers can match their hectares to market demand. However, when the season is delayed or involves patchy rain, then agronomics drive plantings. Long season crops like canola go out the door, frost windows become less relevant - so oats get chucked out, and short season crops become the go to, displacing all of the above, including lupin in the northern areas. What does that mean? WA becomes overweight in barley. If mid-season rains are solid and finishing rains good, then there will be an avalanche of barley tonnes. Who will benefit? Chinese malsters, as prices come down due to over-supply. (Note: this is not a forecast – just what is possible).
None of this is surprising in the land of drought and flooding rains. Imbalance is our lot. One good front around the time this article is published would balance the ledger a tad.
