Growers, whether producing grain or livestock, play at the ground located in the epicentre of the food supply and demand game. Because WA growers are export orientated, it’s almost always an ‘away’ game.

With global population numbers continuing to expand like a middle age waistline, growers need to continue to increase their output. Seemingly, this should be a fairly ordered affair. As populations increase a couple of percent, so too do yields. Steady as she goes.

However, of course, commodity prices are anything but stable, oscillating like a see saw in a storm.

So why is that? In simple terms, it’s fear. Fear of missing out on affordable food. Underpinning fear is uncertainty. ‘What if’ scenarios are played out when there is a threat to supply, and paying a high price now is calculated as being better than the chance of paying an even higher price in future if everything goes south. Demand starts outstripping supply even though the demand and supply levels have not actually changed materially, and fear becomes a self-fulfilling prophecy. The initial invasion of Ukraine has been the most prominent recent example but so too have subsequent threats to Black Sea trade and the potential drought impact on this year’s US crop.

But even with continued unrest, the FAO Food Commodity Index has seen Dairy, Vegetable Oils and Cereal all fall substantially from record highs.

With a number of the supply driver uncertainties, the world is undergoing a macro dose of exposure therapy and becoming comfortable with risk. Again and again, Black Sea trade concerns have been washed away with Ukrainian exporters ‘finding a way’ despite Russia’s desperate belligerent actions. Russia itself has been able to produce more than it ever has, filling part of the gap.

So too are agronomic and genetic advances seemingly able to counter long term climate change. Here in WA, we are growing record crops despite decreasing rainfall. Other parts of the world are also ‘finding a way’ and supply is continuing to build year on year. For example, Brazil has doubled both its corn and soybean production in a little over a decade to become a top two exporter for both.

As a result, news of global issues is having a smaller impact. We are seeing markets react with a ‘meh’ to seemingly big issues. Currently, a poor season looms large in India (the world’s second biggest wheat and rice producer) with rice exports being banned and wheat imports forecast, and yet the global market falls. Why? The trade will ‘find a way’. When rumours of a backdoor deal with Russia for 9mt of wheat surfaced, it was met with a shoulder shrug and a ‘told you so’.  

More likely to have an impact are localised issues impacting basis. For example, QLD and NSW grain prices are much higher than other parts of Australia, due to the demand for cattle feed as areas become drought declared. Or a smaller wheat crop in China is driving wheat imports from WA and SA as the Aussie dollar is falling, along with the Chinese economy.  

Instead of global markets moving like a tide when Alan Kohler mentions that CBOT corn has fallen by 5%, the ‘what does that mean’ question is heavily caveated by the response ‘it depends’. Global falls have seen local rises and vice versa – often counter to expectations. Whether the global market is more fragmented or we are just going through a phase - picking commodity price direction is not getting any easier. Good luck selling the coming harvest!  

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