Futures a friend, basis a buddy and currency a companion

The country sits on tender hooks, as we come to the end of September. The forecasts for the crop from ABARES and USDA seem to be wholly optimistic, and will see severe downward revisions after a terrible month for much of the growing regions.

The futures market had a strong rally mid-week, rising A$8/mt (figure 1) from last week, before shedding A$4 overnight. The market is largely directionless with a lack of fresh information. This evening the USDA will release their September stocks report, which the trade awaiting this to find new grounding.

The poor September on the east coast, has seen the market rally considerably. In figure 2, the flat price of APW1 in Geelong, Port Kembla and Kwinana has been plotted. As we can see Kwinana pricing has remained somewhat flat, and Geelong/Port Kembla has risen in line with one another due to the domestic demand in the north. Albeit still with a substantial premium of $40-45p/t in Port Kembla over Geelong.

The A$, although still high compared to the last year has dropped back below 79¢, helping the local price. In the past month we have seen iron ore futures (figure 3), start to slip which put pressure on the A$. As China drops demand after an intensive import program over the past few months will we see a further slide back down to 75¢

What does this mean?

This week we have basis, futures and currency all doing their bit to help returns for farmers.

The question remains how long these premiums will remain in the market. At present basis in Port Kembla is at +A$118, however the grower is largely holding back from selling. There will still be ample supply in the coming months to meet domestic demand, and this could result in a paring back of basis premiums albeit prices locally are expected to remain strong.