After 2018/19, many were looking to 2019/20 to provide a rebound and finish the decade on a high. However, the phrase, “it was amazing for what rainfall we got”, started to wear thin after a second year of having to say it. Nevertheless, for another extraordinarily low rainfall year, the phrase still holds true.
Some areas actually achieved above average results. Other areas saw much less grain coming in than expected, due to moisture stress, frost, or a mixture of both. The upper Yorke Peninsula and north eastern Eyre Peninsula were notable disappointments this year. Where 2018 appeared to have expectations set low and achieved good surprises in the paddock, the 2019 expectation was set higher but did not translate to results in the paddock.
From a marketing viewpoint, 2019 almost mimicked that sentiment.
With prices almost $100/mt less than the previous year for cereals, many were scratching their heads as they weighed up the risk of the year versus the return of the price. Prices remain inflated by the domestic pull of grain, however 2019 saw some key differences over the previous season. With fewer stock on feed and better crops in Victoria and (to a lesser extent) southern New South Wales, the market has not had to price in pulling this grain from further afield as much. Many buyers were also burnt from buying up at harvest 2018, only to see the price fall substantially. This also added towards a more negative market sentiment this past year.
From a global market perspective, 2019 saw another good year internationally, with global pricing remaining at decile 1 to 2 levels, whilst we sat firmly at decile 9 or above. Indeed, China sitting out of the barley market, due to their lower internal demand requirements and an ongoing trade investigation, has kept the likes of barley fairly subdued.
In all, 2019 saw local prices remain high but reasonably benign, trading in a fairly tight range all year for wheat, barley and canola. The standout movers this year have been beans and lentils, with bean demand still standing up after the record prices of the previous year. The expectation is that these prices will not be as high as last year, but they continue to show strength.
Lentils are perhaps the mystery mover this year. Whilst tonnage was down in SA, Victoria has seen a good year for lentil production. As prices hit $550 Adelaide, there was plenty of volume in the market, yet prices continue to push higher. Rabi production in India is said to be on course for a good year which suggests fundamental change is not the sole driver. A market short could well be the main reason or covering any potential quality issues that may arise out of India.
Looking forward, ‘short’ will be the word of the year, to start with at least. With supply and demand remaining tight, it will come down to the trade seeing lumps of demand that need covering. After 2018, the trade will be cautious of taking on too much in one hit, rather keeping it hand to mouth. This does create shorts and shorts tend to lead to short but strong spikes, and then a relaxation once this demand is filled. The sorghum crop is also likely to be small, at best, which then forces the market to look further afield. It also creates a long, 10-month window where supply will be tight.
Many will be hoping that 2020 sees a return of more consistent rainfall. We expect prices to remain strong until we see a definite turn of fortunes in a productive sense. With that in mind though, forward risk management of pricing is still an important tool to manage a more favourable season, and a profitable decile 9 base should be an integral starting point.