Profits set to increase in grain even as prices fall

Rabobank Australia grains and oilseed senior analyst Vitor Pistoia said while values had come back due to good supplies, particularly out of Russia, and greater confidence in the ability of grain to be able to be moved from the Black Sea region there were reasons for optimism for Australian growers.

"Prices have come back, but crop inputs costs have come back by more, so the ability to produce good gross margins per hectare is actually improved, in spite of the price drop," Mr Pistoia said at last week's Wimmera Machinery Field Days in Victoria.

Last week Australian port prices pushed down as low as $260 a tonne in the Kwinana port zone for benchmark APW quality wheat before staging a modest recovery.

This represents a fall of around $40/t since the end of 2023, and is the lowest figure since December 2021 according to market analysts S&P Global.

In North America it is a similar story, with a three and a half year low in Chicago Board of Trade (CBOT) futures, followed by a weak rally.

The prices hit their low after China and Egypt, both large importers of wheat, both cancelled orders.

The small rally has largely been attributed to investors covering their short positions.

In spite of this Mr Pistoia said he was relatively confident higher quality Australian wheat would provide a winner for growers this year.

"The year is shaping up well in terms of subsoil moisture for many and while the price has fallen if production shifts in line with improved seasonal conditions we're predicting it will be the best gross margins of the major crops at $281/ha."

This figure is up from $158/ha last year, where a poor northern crop and high input costs everywhere squeezed profitability.

Mr Pistoia said Rabobank saw crop inputs falling by as much as 20 per cent, but prices by only 6pc.

He said this dynamic shifted if the wheat was a lower quality grade.

"There is a huge US corn crop to work through and feed wheat will be competing against that, so that is something to consider with both feed wheat and barley."

This has been backed up in export data, with traditional feed wheat markets in Asia slowing down, with only the Philippines not looking at either corn or cheap Black Sea wheat.

Mr Pistoia said barley and canola both had reasonable prospects, with factors both for and against them.

"The demand for vegetable oil remains strong which is positive for canola, but as well as the oil there needs to be money in the meal to allow crushers to be profitable and this has come back in line with feed values," he said.

"While production costs will be lower, the global market for oilseeds is not promising a massive commodity price upside for the 2024/25 season so we see plantings coming back."

He said in spite of the pressure on the feed market Rabobank anticipated barley gross margins would be slightly better than canola.

Outside the sphere of Australia's big three crops, Mr Pistoia nominated pulses as an exciting space to watch for Australian growers.

"Things are set up well for the pulse complex, there has been a poor crop in India and there are emerging issues with dryness in Canada."

"These factors are supportive of both lentils, which have emerged as Australia's major pulse crop and also for chickpeas."

In terms of international weather, he said coming into the critical northern hemisphere spring Russia looked good, with warm and moist conditions, but there were some issues with dryness in North America, not only in Canada but in parts of the US as well.

The conditions in major northern hemisphere crop producing regions will be watched closely over the next few months.

"We are back to a more normal season in terms of the markets where the weather will play a major role in setting prices."