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Grain prices remain low as growers eye third bumper harvest in a row

By all metrics, Australia is set for another monster year of cropping.

With harvest starting in the coming weeks in Queensland, Australian Bureau for Agricultural Resource Economics and Sciences (ABARES) this month estimated a winter crop of up to 55 million tonnes. 

Accuracy and unforeseen weather events not withstanding, it could be the fourth-largest harvest in Australian history

But this stunning success, with a third bumper crop in as many years, has come with a downside. 

Despite spending the best part of the last decade at a premium to other grain exporting nations like the United States, the Australian price has fallen below its international competition.  

Thomas Elder Markets analyst Andrew Whitelaw said there were multiple forces pulling grain prices down for Australian farmers.  

"The reality is we have had some of the lowest prices in the world for most of the past two years for canola and wheat," he said. 

He said several things happened when there was large production.

"You've got extra supply so that has a pressure on the overall marketplace," Mr Whitelaw said.

"You've got to get that out of port, and our infrastructure is running at full capacity, so that brings things down. 

"But also there's no fear of missing out, the grain traders don't have to rush out and buy grain fearing it won't be there tomorrow."

The wildcard  

One of the great unknowns this year is the availability of grain from Russia and the Black Sea region. 

Russia and Ukraine combined produce a quarter of the world's wheat available for export. 

The Russian export season has begun, and a recent agreement has allowed Ukraine to begin shipping grain from its Black Sea ports.

Managing director of Victorian grain broker GeoCommodities Brad Knight said the next few months would play a key role in setting local grain prices. 

"Russian and Black Sea grain is starting to become available, and it's significantly cheaper than Australian grain on the world market," Mr Knight said.  

"The question mark remains around the availability of that grain, and that'll be a challenge for all the global consumers this year.

"If it becomes available in high volumes, that will undercut the price [of Australian grain]." 

The strength of the Black Sea market was on display this week. 

Concerns about Ukraine's crop pushed the world benchmark wheat futures up seven per cent overnight, resulting in a $37 per tonne jump in Australian dollars, to $491 per tonne.

Meanwhile, Australian January wheat futures slipped about $2 per tonne to $416 per tonne, highlighting the huge gap between local and international wheat values.

A lesson from Canada

Grain prices are typically better when the crop is smaller, like in drought years. 

Mr Whitelaw said last year's canola crop was an example of this. 

"We were at a very strong discount to Canada," he said.

"[The question is] were we at a discount to Canada or was Canada at a premium to us? They had a major drought which removed a huge proportion of their export capacity.

"It was similar in the drought years in NSW, which got up to $200 a tonne above the rest of the world.

"But at that point, it's not much point having a premium because you have nothing to sell."

Mr Whitelaw said the lack of forward selling could also add to the price squeeze, and the coming large harvest could force prices lower again.

"This year's crop is starting to get sold but from our discussions with farmers across the country they've sold a lot less in advance then they usually would," he said. 

"We're fast coming into harvest, in November to December we're going to have a lot of grain getting harvested and being sold. 

"Which again puts another element of supply onto the market place, so does that start to pull down prices further? 

"That's a major concern we have."

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