Viability is under threat

A RETURN to warm, dry conditions throughout summer cropping regions in southern Queensland and northern New South Wales has started to fray the nerves of grain traders and consumers alike - particularly for sorghum.

While late November/early December rain has helped get sorghum out of the ground - the crop is probably only 70% planted and will start to struggle without decent "follow up" rain prior to Christmas. As well as consolidating this existing acreage, further rain would generate additional cropping area, despite the rapidly closing planting window.

The market is sending a clear signal to plant a crop if possible - with Downs bids at A$285/MT for April delivery representing the best forward pricing at this time of year, since December 2007.

New crop NTP Brisbane and Newcastle bids are running at about A$300/MT and A$290/MT respectively.

But if decent rain doesn't fall soon, it won't matter what the price is. There is a real risk that substantial areas in southern Queensland will fail to make a viable plant stand, and further sowing will be out of the question.

Put simply, decent widespread rain (50-75mm) before Christmas could lay the foundations for a sorghum crop of up to a million MT for southern Queensland - but if it doesn't rain, crop potential could fall back closer to 500,000MT.

The northern NSW crop is probably better established and looks likely to produce close to 250,000MT - most of which will likely execute into southern Queensland and the Brisbane zone. Meanwhile, production prospects are pretty good in central Queensland - with potential for about 450,000MT of the red grain.

Thus, the "hot spot" is clearly southern Queensland - and with unsettled, stormy conditions forecast for the next few days, we will probably be a whole lot wiser next week.

But ultimately - in the face of anticipated strong Chinese demand - we will likely be looking at a "snug" sorghum balance sheet, regardless of what the weather delivers in coming weeks.

For 2013, we estimate Australian sorghum exports to China will total close to 800,000MT.

And if recent inquiry levels and forward sales are any indication, exports to the Middle Kingdom next season will be more a factor of supply, rather than demand.

Put it this way. Inelastic domestic demand for sorghum is close to 900,000 to a million MT, so regardless of whether the national crop is 1.1 million or 1.6 million MT, compromises will have to be made.

And as far as Chinese demand is concerned - for all feed grains, not just sorghum - we probably need to monitor the recent rejection of up to seven separate shipments of US corn, after they tested positive for the yet-to-be-approved MIR 162 genetically modified variety.

Some analysts are suggesting the rejections are acting as a quasi-trade barrier, to force-feed consumers to first utilise domestic corn stocks, while an unintended beneficiary could be heightened demand for alternative feed grains from a range of origins.

This could be significant for both US and Australian sorghum - as well as barley.

Topics:  matt schmerl pentag nidera