Market Check managing director Brett Stevenson is not a subscriber to the theory that so-called soft commodities, comprising grains and most of our rural exports, will automatically be partially immune to the wider market malaise.
"It's a common assumption that the soft commodities are safe, because 'everyone has to eat' – but there is strong downward pressure – and with corn back below $US4 a bushel, it puts a strain on prices," Mr Stevenson said.
"The market crisis is going to have a strong impact – last year we were talking about a paradigm shift towards strong prices through the medium term, but the changing dynamic may mean this isn't the case.
"It's a nasty thought, and for the present, the market is still quite strong, but you could not completely rule out a return to the pricing levels of 2005.
"Those that don't acknowledge the risk of a return to those pricing levels are living under a rock."
Mr Stevenson said a lot of this assumption had to do with the halving of the oil price, which in turn makes ethanol less attractive.
"Ethanol's been taking a lot of corn out the market, and if there is a weakening in demand for corn for ethanol, that's going to create quite a drag."
He said a change in the US government could also have an impact, by virtue of a weakening in the mandate for ethanol use.
"The language from both candidates indicates they are less keen on ethanol than is the current administration – so that could put pressure on ethanol plants, again lessening demand for corn."
This year, Mr Stevenson said there would be a range of factors influencing specific commodities.
In spite of crude oil prices falling and its intrinsic link to the oil index, canola prices have been solid to slightly higher in the past month – reflecting predictions of an Australian canola shortage.
"Presently we see the domestic crushing companies bidding up almost to export parity within Victoria – as they’re predicting they'll need everything they can to meet their demand," Mr Stevenson said.
In turn, this will act as a boost to Western Australian growers, less the freight of bringing the canola across.
Northern NSW canola is likely to mostly be soaked up by the Cargill processing plant at Newcastle, keeping east coast stocks at very low levels.
"Longer term, those international pressures could have an impact, but in the medium term it is OK."
The large carryover of the summer sorghum crop is keeping pressure on feed barley prices.
"We've seen discounting of feed barley prices, indexed to the sorghum price, which is sitting at $260/t delivered Melbourne.
"Sorghum producers have large stocks and are presently aggressively marketing this grain.
"It has left barley prices under significant pressure."
Mr Stevenson said feed preferences have also impacted on barley prices.
He said many dairy farmers had switched back to wheat, with its superior feed characteristics for milk production, at the expense of barley, even allowing for the premium for wheat over barley.
Wheat is likely to be priced to export parity – but Mr Stevenson warned the exit of the managed funds from the futures market into safer territory could continue to bite in terms of prices this season.
* Extract from a special grains industry feature in this week's Rural Press weekly agricultural newspapers, October 30.
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