The human brain works in strange ways.
We often need to relate extraordinary events to something within our memories.
This often happens when we talk about agriculture, particularly crop production, where the experience we just had needs to be related to something from our past to make it normal. Last year was no exception to this phenomenon and many related it to 2007.
In 2007, Australia had a drought market and broke price records against a range of commodities.
This spells a similar story to last year; but, it was not quite the same. Global futures prices remained low in 2018, at around 600 cents a bushel, while in 2007 futures prices soared to 1200c/bu.
These two years were not the same, so why are they considered similar?
A year identical to 2007 will never happen again. Since 2007, the compound feed demand has increased with the increase of intensive animal production throughout Australia. As well as this, both our technology in crop production and the yields we produce in an average year have increased.
Since 2007, the world has changed. Globalisation and increasing our market access has changed the amount of influence other countries have on our local prices. At the moment, we export 65 per cent of the Australian grain and oilseeds crop overseas, much of this originating from SA and WA.
Last year was a year in this environment. Yes, it was droughty and there was large domestic demand but going forward, we must remember that the landscape of grain has forever changed. We have greater connections overseas.
It is a new year, a new season and in regard to markets, cannot be compared to anywhere we have been before. It is new territory.
So, where does 2019 sit? It is a new year, a new season and in regard to markets, cannot be compared to anywhere we have been before. It is new territory.
The past three weeks at Rural Directions have been spent travelling the countryside delivering a marathon program of grain market briefing sessions. These sessions provide our clients with a snapshot of what is happening within the industry. Covering business, strategy and the grain markets, the briefings offer a valuable insight into the markets.
The past few years has seen an increase in the need to cover geopolitical issues and their influence here on Australian grain markets.
The beginning of the 2019 season is particularly interesting regarding geopolitical issues affecting grain markets and Australian farm businesses.
Brexit. United States-China relations. India-Pakistan tensions. Tariffs and non-tariff trade barriers. China's anti-dumping investigation. These were just some of the influences on global prices that have impacted trade and will continue to influence markets and decisions going forward.
The interesting one in this mix is the China anti-dumping investigation into Australian barley. This has implications going forward, with China taking 68pc of Australia's barley exports.
If China decides to place a tariff on imports of Australian barley, the price could drop $50 a tonne to $60/t overnight. This will be felt harder if the Australian market moves from one that is domestically driven to one that is exporting to our trade partners overseas.
How can we possibly manage this going forward?
The first option is to reduce the amount of barley sown for this 2019 cropping season. With a widespread lack of subsoil moisture across much of the southern cropping zone and producers in many areas looking for less risky crop types requiring low inputs, barley is top of the sowing agenda in many cases.
Another option is to reduce the impact of possible price decreases through forward selling. In many cases, this isn't even considered with production risk a considerably larger issue for many. As well as this, with barley prices well above $300/t not that long ago, we struggle to consider selling it forward at $240/t.
There's no easy way to manage geopolitical risk.
We are in an open market and depend on our exports and trade to continue moving forward.
It is somewhat lucky that production challenges from last year and the increased feed grain demand seen domestically can somewhat limit the impact of overseas decisions. But, what happens when things get back to normal?
Normal doesn't exist with agriculture, as each season will present different challenges to the one before it. Businesses involved in farming may not be able to manage them all, but an awareness of them and the need to keep adapting and moving the business forward will make a difference in business resilience.
