A tough week for local commodities last week, with the effects of the Chinese anti-dumping probe weighing down on the barley market. Canola is also feeling the brunt, with traders justifying their lack of buying due to potential future implications for Australia commodities destined for China. It’s a pretty poor excuse, as they are also saying that’s why Albany CAG is being discounted verses the other zones so much. Keep in mind China still has an import ban on Albany and Geelong origin canola, dating back since 2012.
Nevertheless, the buy side of the trade has the power with canola markets at present and they are doing all they can to push prices down. It’s working for them for now, but volume traded is very small, so I remain optimistic about pricing down the line.
Wheat prices had a quiet week. There continues to be mixed rhetoric out of Russia, some talking slightly better yields and no export restrictions. Others are talking slightly lower production numbers and government pressure to start restricting export shipments. Hence, the market seems to be discounting the Russian headlines and not giving them a lot of weight inside the trade.
There has been some bullish commentary surrounding winter-kill possibilities across portions of the US that have had little to no snow cover.
The broader macro markets have had a very interesting week. Global financial markets have closed out of the best January’s in the last 30 years.
On the other hand, the Baltic Dry Index plummeted to a level not seen since the 1st quarter of 2016. This essentially a measure of what it costs to ship raw bulk commodities. When price falls like this, it is assumed a drop off in demand = less trade = less economic prosperity.
I need to point out in case you read some other articles on this this week. The BDI only came into operation in 1999 and sub seeded the BFI, with quite a few differences, so be careful comparing historical data.
Often Australian agricultural commodity prices perform well in and environment when the BDI falls. The reasoning for this is 2-fold.
Firstly, the AUD falls due to iron ore and other minerals falling (major contributor to the Australian economy). Secondly, we benefit from cheaper freight into South-east Asia. This point can be complex however, as all our competitors also have cheaper freight, and generally they will have to ship it further than us. As a result, sometimes our ag commodities perform exceptionally well with a high BDI e.g. 2007.
I guess the reason for me mentioning it is that it’s now moved 46% lower in one month, and is widely considered as a predeterminant of global economic activity. Maybe there are some rougher waters ahead…
This Friday night we finally have a UDSA WASDE report, which the trade is eagerly awaiting since the missed January report.
