Wednesday, March 26, 2014

More rains needed to resolve Aussie grain fears


Drought fears for Australian grain production are lingering despite the return of rains to dry eastern areas, with far more needed to resolve a precipitation deficit which on some farms is amongst the biggest on record.

Northern areas of New South Wales and central Queensland, where drought concerns have been focused, have received widespread rainfall of 25mm-75mm this week, with some farms receiving 150mm, equivalent to about inches.

However, while the rains, which came ahead of the autumn sowing window, "have injected at least some confidence that we might get a winter crop planted" in the region, "we are still a long way from filling in water deficits", grains broker Pentag Nidera said.

Furthermore, the rain might have actually made a short-term squeeze on grain supplies worse by causing yield and quality "issues" for standing sorghum crops.

'Soothed rather than healed'

National Australia Bank said that recent rains had "helped ease the extreme rainfall deficiencies" in parts of Queensland, where rain on many farms had in the 17 months to the end of February been amongst the lowest 10% on record.

"That said, the recent scattered rain events have merely soothed the wound rather than healed it," NAB agribusiness economist Vyanne Lai said.

"Much more rain is needed for any major turnaround in conditions.

"Soil moisture in the upper layer soil of eastern Australia has improved from recent rainfalls to some extent, but remains very much below average for the current drought-affected north eastern New South Wales and south eastern Queensland."

Rainfall outlook

The comments follow a forecast from the Australian Bureau of Meteorology on Tuesday which, in raising the likelihood of an El Nino weather pattern developing by winter, cautioned over the potential for below-average rainfall in eastern Australia this year.

El Ninos are linked to dryness in eastern Australia, as well as in parts of South East Asia, India and West Africa.

Indeed, there is a 60-65% chance of below-average rainfall for much of the grain belt between northern New South Wales and central Queensland, the bureau said.

This contrasts with a 60-70% chance of better-than-average rains in Western Australia, the top grain producing state, in the April-to-June period, the major sowing window.

Market impact

On the Sydney grain markets, east coast wheat futures for January 2015 delivery, having dropped 2.5% to Aus$313.00 a tonne on Monday because of the rainfalls, have recovered most of these losses, closing on Wednesday at Aus$318.50 a tonne.

On the Queensland cash market, the impact has been to lower prices by some Aus$5 a tonne from levels which in Brisbane had reached Aus$330 a tonne for APW (Australian premium white wheat).

"Whatever the case, historically these prices represent very strong physical levels this far ahead of sowing," Pentag Nidera said.

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