Markets

Hay and grain markets rally

By Sofia Omstedt

WHILST THE farmgate milk price outlook is a key discussion point at this time of year, farmers will no doubt have noticed some unpleasant changes in other parts of their profit and loss sheets.

After an unusually dry and hot autumn in many parts of Australia, hay and grain markets have rallied.

The once full sheds of carryover hay, from the record breaking harvest two years ago, have started to empty out as demand for hay surged.

Hot and dry weather also resulted in below average soil moisture in many cropping regions at sowing time, impacting crop programs and adding pressure to grain markets.

If rain remains elusive the outlooks for the winter crop could quickly deteriorate.

Following a wetter than average spring and the last two years of huge harvests, the hay market was forecast to remain subdued for the remainder of the year.

Sheds full of carryover hay from previous seasons were set to continue to suppress prices and limit demand.

However, without a proper autumn break in most of Australia, the fodder outlook has worsened.

Drought concerns have activated the market and demand has surged to the point where demand is exceeding supply in some regions.

This has resulted in an unexpectedly rapid draw-down of carryover hay, to the point where some sheds are close to empty, as farmers move to secure hay for the winter.

In Victoria and South Australia supply of hay is still strong and at this time sufficient to satisfy national fodder demand.

Because of this supply hay prices in Australia remain below the five year average despite the surge in demand.

However, compared to the subdued values of the past two years, price rises seen during autumn have been notable.

The drought in New South Wales resulted in the largest price jump and unless rain eventuates prices are likely to continue to rise in the state.

As hay is freighted increasingly large distances to satisfy fodder demand, additional costs will be incurred and more distant markets impacted.

Looking ahead, the lack of a clear autumn break has also discouraged farmers from planting new fodder crops, which could result in less hay on the market next season.

The question is whether the supply of hay in Victoria and South Australia is sufficient to keep prices from further rallies during winter.

In the case of grain, above average spring rainfall and the likely record global wheat crop in 2017/18 painted an optimistic picture.

The International Grains Council projects that 758 million tonnes of wheat will be produced in 2017/18, up 0.4% compared to last year.

However, in 2018/19 wheat production is forecast to decline slightly while global wheat consumption is expected to grow.

Wheat prices rallied during autumn due to production concerns in several major exporting countries. In the United States the wheat crop is drought affected and dry conditions in Russia, the Ukraine and Australia also caused wheat production concerns.

If these concerns eventuate global wheat prices may continue to increase in 2018/19.

In Australia, the total winter crop tonnage in 2017/18 is tipped to come in 6% above the ten year average, and together with a 12% larger summer crop (according to the ABARES’ February crop report), availability is far from critical.

However, 2018/19 crop prospects worsened during autumn as hot and dry weather coincided with sowing in many cropping regions.

Wheat yield estimates have been revised downwards and below average soil moisture has negatively impacted crop development.

Where available, irrigation will prove essential this season for crop growth, according to market experts.

Since the start of the year delivered prices have increased roughly 20% in most regions, reflecting the risks facing the current crop.

Rainfall is the key antidote to the current grim outlook for the fodder and grain market.

For its part, the BOM forecasts an equal chance of above or below average rainfall during winter, meaning that at this stage, uncertainty is the only thing to be sure of.

• Sofia Omstedt is an industry analyst with Dairy Australia.