WORLD grain prices have made a sizable rally on the back of growing concerns around soybean supplies.
Soybean values have spiked markedly, up 19pc since the start of March and currently sit around two year highs according to market analysts easyMarkets and have dragged other commodities up with them.
Market analyst with easyMarkets James Humpherson said the major factors behind this were a big rise in Chinese soybean imports and concerns surrounding the Argentinean crop following flooding there.
And the big rise has created flow on effects in wheat and corn.
Bartholomaeus Consulting principal Malcolm Bartholomaeus said wheat futures in the US had kicked to their highest levels since February.
He attributed this primarily to wheat being dragged up in soybeans’ slipstream, but also said there were a couple of stocks-based issues to watch.
While at face value the stocks information in last week’s US Department of Agriculture (USDA) report was bearish for wheat, Mr Bartholomaeus noted much of the stockpile is in China, which is not a wheat exporter.
“In exporting origins such as the EU and Canada there has been a drop in wheat stocks.”
Mr Bartholomaeus said he did not think the current rally could be sustained in the short term without fresh production news, but said it may help set a platform for later in the year.
“We may see more demand for US wheat if there are shortfalls in the EU and the Black Sea, which, given current stocks levels, could happen later in the marketing period.”
However, Emerald Grain chief operating officer David Johnson said he saw wheat gains as solely a reaction to the soybean surge.
“Wheat is purely a follower at present, there is a comfortable buffer in stocks in both wheat and corn, the market is focusing on soybeans and the other commodities are being dragged up with them.”
He said the soybean market was weather driven, with Argentina front and centre on the market’s mind after officials confirmed at least 1.6 million hectares of Argentinean soybeans had been lost to flood damage.
“The Argentinean floods have changed things – there is a real focus on the US crop and the market is hypersensitive to any potential risks there.”
In particular, Mr Johnson said the market was closely monitoring the potential development of a La Niña weather event.
In contrast to Australia, where El Niño events are associated with drought, in North America, La Niña often leads to below average rainfall.
Yields for early wheat crops are close to set but Mr Johnson said the risk was still present for soybeans.
“August is the key month for soybeans, so the market is closely seeing whether a La Niña may have an influence then.”
He said Chinese demand for soybeans was growing and would continue to do so if uncertainty surrounding supply continued.
“This is supportive of other oilseed crops as well, such as canola,” he said.
Australian producers, however, have not necessarily targeted canola in their cropping rotations this season.
Victorian grower Dane Quick said his rotation had included more barley and faba beans this season.
He said his decisions had been based on agronomic matters rather than chasing prices.
In terms of marketing this year’s crop he said he would continue to monitor grain prices, but said no sales would be made until crop prospects were assured.
Mr Humpherson said he believed soybean futures, currently at US1064 cents a bushel could top US1250c/bu if the current prevalent market factors continue.
He said the soy meal sector in China was the key player on the demand side.
“Soy meal is up 40pc from its March lows, compared to 10pc for soy oil,” he said.
The rally, however short lived in the wheat market, will be welcomed by the Australian industry, which has struggled with declining exports in recent years, battling to compete with other origins due to price and cheap sea freight, meaning freight advantages into south-east Asia have been lost.
Mr Johnson said wheat exports had dropped significantly this decade.
“There has been a fall of around a million tonnes each year since 2012-13, from 18.5 million tonnes then to an estimate of 15.5 million tonnes for this year.”
