Grain demand up as price falls

PROMISING demand signals from China, combined with a USDA update that suggesting global corn values may have done enough downside work for now, are boosting trade confidence that solid price support could build for new crop sorghum, which is below the market.

Combined with regional feed grain shortages, this should help underpin the whole price matrix in southern Queensland and Northern New South Wales.

But with sorghum values already at historically high levels - particularly in US dollar terms - and early northern hemisphere new crop wheat and barley prospects looking good, it is important not to get the idea of price "support" mixed up with outright bullish euphoria.

Rather, with new crop sorghum now down $10-15 from mid-October highs, further downside for the red grain could be tougher going from here.

Sure, there has been some good rain in central Queensland and continued forecasts for unsettled conditions in southern Queensland and Northern NSW are generating improved production confidence.

But a big crop is still far from a done deal and it feels like sufficient demand should be there to soak up production, if the price is right.

Domestically, sorghum probably doesn't need to trade much more than a $40-45/MT discount to 70/10 wheat to buy close to full inclusion in feedlot rations - and for new crop Feb/Mar/ April delivery slots, the spread is already there at closer to $50/MT.

That said, the feed grain market will be "capped" by the ability to draw cheaper white grain to southern Queensland from more amply supplied regions in southern NSW and Victoria.

Given the USDA is pegging global wheat ending stocks at a relatively "loose" 178.48 million MT - combined with good planting conditions for much of the northern hemisphere - support for wheat prices in these "export dominated" zones looks a little more tenuous.

For export markets, any subsequent deterioration in domestic wheat markets wouldn't necessarily mean sorghum would move in lock-step, with strong stand-alone export demand for new crop already evident.

We believe close to 100,000MT of new crop Australian sorghum export business may have already been executed to China, with an increase in inquiry noted, as the price has fallen in the past week or so.

To this end, the falling Australian dollar, in the past few days, is also helping.

For the 2013 harvest, Australian exports to China will probably finish up at about 800,000MT - and if production is sufficient (and the price works), there is every reason to believe we can match this figure again.

Topics:  grains markets matt schmerl pentag nidera