Global price volatility dents grower confidence

Wheat prices at six-year lows are taking the shine off widespread Easter rains across the Wheatbelt.

Plum Grove director Tony Smith said in US dollar terms, current wheat prices were at 2010 levels with world stocks of grain at 29-year highs.

“To put this in perspective, if grain crops around the world are average this year, in order for Australian wheat to be competitive on the global market, prices will have to be sitting around US $190/t, which is down around $230/t,” he said.

“Unfortunately we also have to combine this with the fact that Australia is carrying over around six million tonnes of wheat, which is the highest level of milling wheat stocks we’ve ever seen.”

Mr Smith said a major issue for Australian growers was the competitiveness of grain production costs.

“There is so much grain being produced from cheaper origins, such as Argentina, the Black Sea region and Europe, and they are prepared to sell wheat at much lower levels than us,” he said.

But Mr Smith warned it was still early in the season, and weather events in the northern hemisphere could impact on prices considerably.

“While prices are currently very depressed, things could change significantly in the next six months,” he said.

Mukinbudin farmer Jeff Seaby is still a strong believer in the importance of wheat pools and price protection for growers.

“I don’t think its right that for exactly the same product one grower gets paid $50 more than someone else,” he said.

“I like the pools, sometimes you win, sometimes you lose, but it seems to average out over the longer term.

“Farming is a big enough gamble anyway, we don’t need to gamble when we market our wheat.”

Mr Seaby agreed global price volatility was taking the edge off farmer confidence heading into the 2016 season.

“We have no control over our two main profit drivers, being rainfall and wheat prices, and so we are at the mercy of what happens in the northern hemisphere.”

“Wheat marketers are the same as stockbrokers, they haven’t got a crystal ball, no one really knows what is going to happen, and if they did stockbrokers wouldn’t be brokers, they’d be owners,” he said.

“Since harvest the Australian dollar has risen 11 cents and no one could have predicted that, and this has put a significant pressure on farm gate returns.”

According to Profarmer analyst Hannah Jansen, while Chicago Board of Trade futures values hit their lowest levels this February since 2010, the next few months could see greater global price volatility.

“Domestically we were sitting at decile two-three price levels at the end of March, but northern hemisphere winter wheat crops are coming out of dormancy and the corn and soybean crops will start to go into the ground,” she said.

“So if we see any weather concerns in the northern hemisphere, that has the potential to push the market around a fair bit.”

Ms Jansen said strong world stock carry over could limit the potential of that volatility.

But she also warned growers not to get too caught up in US sentiments.

“Over the last month the stronger Australian dollar has weighed on local values and that’s where some of this pessimism is coming from,” she said.

“Our currency rates are about unchanged from where we were this time last year, but prior to last June these were the lowest levels we’d seen since 2009 and we can’t underestimate how much protection we have had from the Australian dollar in a holistic sense over the last two years.”