Using accurate data to minimise your risk in the commodity market
Who we are
Lachstock was founded in 2007 as a result of the deregulation of the grain market. The grain market experienced changes to procurement, distribution, product release and an increase in grain price volatility. With more participants and products hitting the market the buying and selling of grain became a complex process.
Using accurate research and market analysis, we take the complexity and noise out of the commodity market. We tailor our commodity advice to your personal requirements, setting reasonable personal targets to increase profitability but also reduce risk. Opinions are great, but we use the data!
Lachstock Consulting holds an AFSL #320 562 to provide advice to wholesale clients on derivatives and foreign exchange.
Who you are
We adapt our commodity marketing services to meet your needs within the grain industry. Whether you are a corporate business looking to improve business strategies, a farmer who grows grain or a grain consumer looking to lower your outgoing costs, we have a solution for you. Through market analysis we aim to reduce cost, reduce risk and thus improve your margins.
Commodity Research and Advice
Example Wheat Supply & Demand Report
27th November 2020
Wheat take aways:
- Great yields coming off across the east coast as estimates push to new records
- Australian crop estimated at 30.8 MMT (8.1 WA, 5.0 SA, 3.9 VIC, 12.3 NSW, 1.4 QLD).
- Quality concerns have not been a problem, with great harvest weather allowing quick fieldwork and limited crop damage
- East coast logistics to remain in focus with the large crop and heavy existing export sales (and more interest ongoing given the global market)
The old saying is that big crops keep getting bigger – and so far the yields coming off across the east coast have been living up to that expectation. After great yields up north and in central NSW (with a few disappointing spots where they slipped between the rain storms), harvest into the Riverina has continued to bring off yields some 15-20%+ above pre-harvest budgets. With the consistency of those results coming off as headers push further south, we’ve ended up pushing our crop estimate to 30.8 MMT (8.1 WA, 5.0 SA, 3.9 VIC, 12.3 NSW, 1.4 QLD).
Yes, we’re well aware of talk into the 35+ MMT type range and with the great results it can be tempting to debate just how high the crop will go. However, we’re already pushing new records for both yield and production across NSW (and some parts of VIC/SA), and with production in new territory it’s hard to say with high confidence exactly where the figure will end up. This is going to be especially interesting with bunker storage filling up at many bulk handling sites (and with the increase in on farm storage over the last several years) as less of the real crop is directly visible to the trade. Though we may see some late upside to our estimates above, we don’t expect the 35+ talk to be realized.
To a certain extent though, the exact size of the record crop doesn’t matter much in the short and mid term. With the tonnes both available and competitive on an export level, markets through the coming months are more about logistics and capacity than anything. The crop is massive and needs to move, which means that both both internal and port facilities are going to be pushed hard. The increase in elevation capacity over the last several years (ie NAT, QUBE, and the portable ship loaders in Victoria) takes a little pressure off the elevation side, but that only adds to the demand internally for trains and trucks.
This becomes more relevant when we take into consideration the coming new crop inverse. Although there are many legitimate concerns about the stressed crop condition in both the US and Russia/Ukraine, there’s still a fairly significant inverse between spot/old crop values there and indicative new crop levels. If the crop does tip over in the spring we may well see that inverse flatten out, but until then it is present and relevant.
The CME/Platts swap contracts are not the most liquid (or always the most reflective), but they do provide a fairly neutral benchmark for visual comparison. As a WA based benchmark their Aussie values are also about $25-30 above east coast markets, but again the relative spread move is as relevant as anything – and the rally in BSEA values (despite the recent tick lower) has allowed Aussie wheat to price in some demand while holding at (fairly) consistent levels since the start of harvest.
The same caveats on CME/Platts data quality are also true when it comes to the new crop, with an added uncertainty factor that new crop BSEA markets are still fairly illiquid. However, the ~$35 inverse between old crop and new crop is generally in line with what we hear discussed in cash markets so, again, for an easy glance perspective.
Where does that leave the east coast? Well, we’ve got roughly six months in which east coast wheat is the cheapest grain around. While we have shifted around some export flows in a small way, with that inverse present we have left our NSW exports at 4.1 MMT as there isn’t (yet) the market spreads to encourage a heavier late season flow like we have seen in some years past.
The closer we come to the new crop harvest in the Black Sea (assuming the crop does not fall over), the less time there is to “buy” demand. That doesn’t necessarily mean that we “need” to see Aussie values collapse, but it will certainly keep some pressure on the domestic market if there is not another story to be found – and continue pressure to get grain moved in the front half of 2021 prior to the inverse.
With Russian export quotas confirmed at 15 MMT (all grain), the potential bull story there is mostly a non event. Given exports to date, existing stems, and pressure to front load the shipment program we should see that end up comfortable in the high 30 MMT range. A similar comment can be made about Argentina – with the tight crop there the export program is already constrained, but that’s been expected for a few months now. EU markets have been holding up and benefiting from the demand shift away from BSEA to the EU, but again that’s……
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