Kristin Murdock, Naracoorte Community News
Farmers would have noted that grain markets have been pretty flat of late. According to analyst, Andrew Whitelaw of Ep 3, there have been plenty of news stories in the past two months that may have influence. A lot of it involves speculation – speculation that Russia wouldn’t extend the export program ex Ukraine and speculation of huge floods in China. Not to mention the actual bombing of a huge dam in Ukraine.
The reality is that these events have only caused blips.
France is Europe’s largest wheat producer. The EU produced 140.5 million metric tonnes (mmt) of wheat last year, of which 38.5mmt was exported. Europe is a major player, especially when it comes to trade with the North African countries.
So how are the conditions this year? If we compare the most recent data against the period from 2012, then it’s good. At present, the conditions are rated 88 per cent good/excellent. This is only 1 per cent lower than in 2015, a year in which the EU produced a bumper crop.
The US is another important global producer of grains. While France is going gangbusters, America isn’t so lucky. Drought conditions have impacted crop conditions and conditions are below average across all the major grains, especially winter wheat.
Although not widely grown in Australia, Mr Whitelaw suggests keeping a close eye on corn and its development as further downgrades could have a big impact.
“Speculators, love them or loathe them, have an impact on the market. They ‘bet’ on the future value of commodities. They make their crust by effectively attempting to guess the direction of the market; they can be short or long,” Mr Whitelaw said.
If speculators ‘bet’ short, they are betting on the market falling further. Short sellers have effectively sold something they don’t own and will aim to buy it back at a lower price in the future.
Long sellers bet on the market rising. They own the commodity and aim to profit from selling it at a higher price in the future.
According to Mr Whitelaw, at present, speculators are holding the longest net short position since 2018.
“Currently, the market doesn’t seem to be showing too much reaction to events. The market is balancing the bearish with the bullish,” Mr Whitelaw said. “The world is still in a dicey position, with the ongoing war in Ukraine, which doesn’t seem likely to end any time soon, and also with stocks within the world’s exporters forecast to be pretty low this year.”
“In recent years farmers have been lucky to have good crops and decent prices come harvest. This year it is more important to think about your selling strategy. Keep it simple, but we can’t expect a huge global jump without a major hiccup in the northern hemisphere. If we get a local jump, it will be down to local issues. A local issue, with the corresponding high basis might sound good on paper – but it generally means you have less to sell. In a perfect world, we’d have high prices caused by overseas factors and high local production”
This article appeared in the Naracoorte Community News.
