CHICAGO Board of Trade (CBOT) December 09 futures have dropped back to hover around US500¢/bushel, and Australian forward contract prices have fallen by several dollars a tonne over the past week – as market commentators look to 2010 for positive news.
It is little consolation for farmers dealing with prices only slightly above the cost of production and unable to carry grain into the new year, due to the need for cash flow for next year’s planting period. But both ProFarmer and Rabobank expect a medium term rally in prices.
ProFarmer managing director Richard Koch said the size of the 2009/10 crops will extend the period of low prices into 2010.
However, in more heartening news, he said fundamental demand would mean the trend will eventually turn to higher prices again.
Mr Koch says they are expecting a double-kicker in demand, with both livestock feeding and ethanol demand increasing.
With crude oil prices remaining around $US70/bll, ethanol margins have moved strongly into the black and capacity utilisation is ramping up again quickly.
His views regarding a price rebound for 2010-11 are shared by Luke Chandler, global head of Agri Commodity Markets Research for Rabobank, who says lower global wheat plantings forecast for next year are likely to set the scene for some price recovery in 2010/11.
“There are increasingly positive signs that we will see some upside for prices in 2010/11, as production around the world is adjusted downwards with growers responding to the current lower price signals, resulting in reduced supply,” he says.
“In addition, we are starting to see some improving signs for demand from biofuels and Middle East imports, although supply levels remain more than adequate at present.”
However, the short-term picture is less rosy, with the big international harvest complemented by an Australian season with improved yields.
Mr Koch says that even in supposedly poor areas of NSW and Queensland, there are still patches of reasonable crops, meaning there is only likely to be a small grain deficit in the northern cropping belt.
This will knock southern producers' hopes of finding another domestic home for their grain by carting it north to meet feed grain shortfalls.
The National Australia Bank is also predicting a hefty yield increase, flagging a 7pc increase in wheat production on last year, setting its production estimate to 23 million tonnes.
It has also lifted its figure 2pc on its September estimate, not a significant figure, but the first time in several years that production estimates have risen through the spring.
NAB’s general manager of Agribusiness, Khan Horne, says at this point, the big winners appear to be South Australia and the Wimmera and southern Mallee in Victoria.
“Our customers and bankers in these areas are telling us that their production forecast is the highest in recent years,” Mr Horne says.
Mr Koch says the best hope of a pricing rally lies not in a change in the fundamentals, but in a fund-driven spike.
He says data suggests funds are still short on their contracts, meaning there is the chance of a further rally as the funds look to cover their shorts, although the currency climate means any gains on the US futures market will be diluted by the high Aussie dollar.
Mr Chandler is forecasting a 10pc rise in US futures for the 2010-11 season. He says Rabobank is predicting CBOT contract rates of US550¢/bushel midway through next year.
Email a friend