It must be hard being a currency forecaster, because they rarely seem to get it right. In this weeks grain market commentary we take a look at futures, currency and basis.
The futures market has provided somewhat of a price recovery since the middle of 
December, when the spot contract switched to the March delivery. In figure 1, I have produced a fancy animation to show both the futures in ¢/bu and A$/mt. The futures contract has made a steady rise (up %), however when converted into A$, we can see that prices have largely gone sideways.
This lack of upward movement is because of an appreciating Australian dollar, this can be seen in figure 2. This has been caused by the recent release of bearish US CPI figures, pointing to the delay of interest rate hikes there, and some stronger economic data out of Australia in the form of improved employment figures and robust retail spending in the lead up to Xmas.
Basis levels have stayed relatively stable during the first two weeks of January, however basis remains on a tight balance. Will a strong finish to sorghum drop feed grain demand, or will the ABS downgrade to the 16/17 crop and resulting fall in carry give a floor to pricing?
Please note this comment was produced last night, and will not consider any changes overnight.
Next week
The WASDE report will be due overnight, along with US planting numbers. It is doubtful that we will see much to sway the markets, but I will keep an eye and if anything interesting comes up, I will report on Tuesday.
lotfeeder and restocker activity fairly prevalent. Many saleyards did not have the full compliment of processor and export buyers in attendance and both quality of stock present and price movement reported as being fairly mixed.
Chicago futures (figure 1) have gained 3% since boxing day, although the A$ has removed most of the shine from the rise. The market is currently starting to price in weather risk into the US winter wheat crop, after a series of cold weather events is likely to have caused some damage since inadequate snow cover was in place.
cattle per week at Murray Bridge. While this is a very large, 65-70% of MLA’s reported weekly kill for South Australia (figure 1), it accounts for just under 4% of east coast slaughter (figure 2).
after having rallied strongly in December. This week’s rise was in the order of 20¢ for ‘young lambs’ (figure 1). More shorn lambs will start to hit the yards over the coming weeks, but young lambs are still the majority of this market.
an imprecise art. With livestock, in particular sheep, it’s even harder. The starting number of sheep is always rubbery. Good seasons can see tightening supply and poor seasons heavy increases. Add to this variation in lambing percentages and on the same starting flock we have in the past seen variation of 10-15% in lamb supply.
general. After a small, and short-lived, bounce back to the 520¢ level in late November, the Queensland 100 day Grainfed Steer price has resumed its downward trend, finishing the 2017 at 507¢/kg cwt.
Figure 1 shows how the gross margins for the lamb trade have behaved over the last two years, and on average. The green shaded area shows the range of results two one standard deviation. The data points are for the sell months, so lamb purchases were made two months earlier.
The Christmas spirit continued this week in wool sales with buyers bidding strongly from the Tuesday opening, before becoming slightly more subdued on Thursday. This resulted in strong week-on-week increases across the board, with the 32 MPG in Melbourne the only one to miss out.
hwhile highlighting the performance of this contract. In figure 1, we can see the price from the start of trading in July 2015 to present. Apart from some northern hemisphere jumps mid-year in both 2016 & 2017 the market has been on a downward tradgetory.