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    AU drought

    Drought extends its grip
    July 6, 2008 - 12:35PM

    Latest related coverage
    Warning of severe droughts just years apart

    The most drought-ravaged areas of NSW have received the cruel double blow of worsening conditions and a looming locust plague.

    And consumers are facing the prospect of further price hikes, with a failure of winter crops likely to increase the cost of food.

    The big dry extended its grip across the state this month, with a further 2.3 per cent of NSW slipping into drought, taking the total drought-declared area to 65 per cent.

    Of the rest, 20.9 is considered marginal, with a mere 14 per cent - largely along the coast - deemed satisfactory.

    Primary industries minister Ian Macdonald said June was a "horror" month for the south-western region, where just 10mm of rain fell in some parts.

    Dam levels also were very low in crop-producing areas, particularly in the Snowy Mountains and the central west of the state, squeezing irrigation supplies.

    Compounding the problem in these parched areas were reports of locust activity, stretching west from Albury and as far north as Junee, the minister said.

    Up to 900 properties had discovered beds of locust eggs, and Mr Macdonald said he feared there could be many more not yet reported.

    A locust plague devastated the state in 2005, wreaking $1 billion in damage to crops.

    "We need a lot of rain very shortly because we've planted 95 per cent of the 5.2 million-hectare winter crop, this is most of the wheat crop that is so important to our rural communities' income," Mr Macdonald told reporters.

    "If we have another failure of our winter crops this will place... even further upward pressure on prices for foodstuffs across NSW, particularly at a time when high fuel prices are already forcing most commodities prices in an upward spiral."

    Mr Macdonald said a wet front was forecast in the coming week, and about 50mm was needed to see the crops through to spring, he said.

    The government had also prepared a "battle plan" ahead of the spring hatching of the locusts, involving aerial spraying of affected areas.

    Mr Macdonald said the Garnaut report was "ringing" in his ears, but denied that this drought - now in its sixth year - was the result of climate change.

    "I don't link this drought to climate change," he said.

    "In the south-east of Australia we've had some major droughts ... for instance the federation drought at the turn of the 20th century went for 14 years."

    "I think drought is a very natural cycle in the climate characteristics of Australia."

    New drought-declared areas include Hillston, in the state's central west, and parts of Mudgee, Narrabri and northern New England.

    AAP

    #2
    Charlie et el;

    Interesting news from 'down under'!

    Notes from New Zealand

    Here are a couple of points
    from last week’s quick trip.
    • No-one is quite sure just how much wheat has been
    planted this year. A lot of sheep famers, particularly in
    the south, are growing wheat for the first time ever.
    • There is some concern that they have not properly
    controlled aphids, and that numbers could build up and
    cause an issue for everyone down the track, including
    spreading disease.
    • Canola is being grown for the first time, again down
    south on new land being brought out of sheep
    production. It is not allowed in Canterbury, where there
    are concerns about cross pollination with the many seed
    crops grown there.
    • The canola is being used for biofuels, and the acreage
    should expand rapidly over the next few years.
    • There is a $3.25/t levy collected on all wheat to fund
    their industry insurance scheme. The insurance is paid
    out on losses for wind, hail, fire, rain etc. I think there
    has to be a 30% loss before there is a payout on the
    whole loss, less a normal excess. The payout is
    limited to the cost of production, currently pegged at
    $230/t.
    • There was some debate about trying to get the payout
    lifted to $250/t, even if it meant the levy had to lift to
    $3.50/t.
    • Growers can buy topup insurance if they want to.
    • In the meeting where this was discussed there was a lot
    of discussion about the increase in production costs.
    One grower still thought his costs were around $220/t.

    • Contract prices for new season feed wheat are around
    NZ$480/t delivered feed mill, which I thought was
    consistent with my expected A$ prices over here.

    • A number of the flour mills are not that keen to commit
    to contracts this year.
    • A number of growers are looking at the contracts as
    well, because prices have risen late in the year in the
    last two years.
    • Storage is seen as an issue with silo bags being looked
    at. However, they are concerned about high moisture of
    grain going into plastic bags.
    • Exporters are feeling the pinch at current high prices.
    For example, a 20t container of grass seed now ties up
    $120,000. A year ago it was $60,000.
    • The comment was made that NZ growers will have to
    get used to only being able to sell when the buyers
    actually need the product, not when they (the growers)
    decide they want some income. The sums of money are
    getting too large for individual exporters to remain the
    “bank” for growers.
    • Within 2 years there is not likely to be a single sheep
    left in Canterbury. It will all be cropping and dairy
    farms.
    • The pork industry is not coping with an increase in
    domestic production forcing prices down, cheap imports
    also forcing prices down, and high grain costs.
    There is much more and relevant info in this newsletter… I would encourage anyone to buy this… BEFORE THE WESTERN SEDUCER!
    As a grower… Malcolm is talking about drought:

    (http://www.bom.gov.au/climate/ahead/rain_ahead.shtml)
    They are indicating just
    • A 35% chance of median rainfall or better for much of
    SA.
    • A 40% chance for southern tips of SA and much of
    Victoria and southwestern areas of the NSW wheatbelt.
    • A 35 – 40 % chance for much of WA apart from the
    southern region, where the probability goes above 40%.
    • A probability of 40 - 45% for the western NSW region
    going right up into Queensland.
    It is about as negative as I have ever seen a BoM seasonal
    outlook. If it is true, our chances (and everyone else for
    that matter) of maintaining our current yield potential is also
    down around 35 – 40%.

    callum@capri.net.au Malcolm Bartholomaeus
    Managing Director Callum Downs Commodity News P/L

    Clare Office: Adelaide Office:
    Callum Downs Callum Downs
    PO Box 54, Clare, South Australia 5453 6 Garnet St, Gilberton,
    Sth Aust 5081

    Ph (08) 88422781 Ph (08) 82697435
    Fax (08) 88423078 Fax (08) 88423078
    Mobile 0411430609

    DID YOU Get that Charlie?

    "• Contract prices for new season feed wheat are around
    NZ$480/t delivered feed mill, which I thought was
    consistent with my expected A$ prices over here."

    WOW!

    And the CWB is extracting a premium for us?

    FROM us... it is obvious!

    Comment


      #3
      That would be $10.00 / Bushel delivered into the mill.

      Not bad.

      Comment


        #4
        And now for some sarcasm.


        This all points to a world bumper crop. Good thing the cwb is monitoring this situation while they are on holidays.

        I have always wondered how 3-4 years of drought with no subsoil moisture equates to a bumper crop anywhere in the world without having substantial replentishing rains. On my farm in sask the tap turned off June07 and didn't rain until spring 08 and the crops for 08 will not make average because there is no subsoil moisture. Iam ayoung farmer 45 and none of the production estimates make sense.

        People like charliep say Canada makes no difference in the scheme of things, Australia exports about the same as us, I guess they make no difference either. But when things go for shit for some reason the world starts to take notice. Very strange.

        Comment


          #5
          There is a reason why US wheat futures prices are $9 to $10/bu, cbt corn is $7 to $8/bu a and soybeans are over $16/bu. I suspect markets have a fair bit of drought in them already.

          The one thing about markets is they will always let you know whether you are right or wrong given time. Perhaps why I am as much a student as anything else - always learning and reviewing what I said/why and then trying to improve.

          I note Kodiak's comments on the demand side a few threads back. Would read this and consider in your risk management strategy (risk being both opportunity to benefit as well as survive negative consequences).

          Comment


            #6
            Here is the thread.

            https://www.agriville.com/cgi-bin/forums/viewThread.cgi?1214839947

            Comment


              #7
              Dear Charlie,

              I understand there is some major deteriation in the AB/BC Peace...

              Malcolm (again from Callum Downs July 1/08)adds on the topic you folks just went through...:

              Security of Global Wheat Supply In 2008 It appears to
              me, that a large year on year increase in global wheat
              production, and the second largest annual surplus since
              1997, is not enough to secure wheat supplies for this year.
              The problem is, that of the 16.92 mill t increase in global
              stocks expected this year, 6.33 mill t is within the US, and
              5.03 t is within China. Stocks in the rest of the world are
              projected to only increase by 5.56 mill t.
              If Australian production drops to 18.44 mill t, without an
              increase in output from somewhere else, stocks outside of
              China and the US will fall again.
              Stock levels within China are irrelevant most of the time,
              but they are included in the global numbers. They are only
              relevant if China decides to import wheat. They are not
              likely to do that in 2008/09.
              When stocks outside the US decline, it pushes demand back
              to the US. That will push up US prices. US futures rise,
              and basically prices from other countries lift as well.
              I do not think that the global supply of wheat is at all secure
              while the Australian season is shaky. If we do drop below
              20 million tonnes, I would expect it to have a profoundimpact on wheat prices, because basically it will mean that
              global stocks have not increased in a meaningful way
              despite a sharp increase in plantings of wheat this year.
              Even if we leave the US numbers in there, stocks are not
              going to rebuild to levels that traditionally have relieved
              price pressure. Whenever stocks outside of China have
              dipped below 100 mill tonnes, we have had high wheat
              prices. At current USDA projections, non Chinese stocks
              will remain below 100 mill t for another year at least.What interests me is that even though global stocks were
              lower in 2004/05 and 2005/06 than they were back in
              1995/96, wheat prices were lower, because outside of
              China, stocks were still very high. It was only when stocks
              outside of China dived lower in 2006, and then 2007. that
              wheat prices overtook the levels seen back in 1995/96.
              What does it mean for prices for this year?
              • Now that the recent upward tend has been broken,
              expect to see the market pull back into some form of
              harvest low. That low may be above the May low, but
              still lower than where we are today, and possibly down
              to 800 USc/bu.
              • If the Australian crop gets itself into trouble (it seems to
              be heading that way at the moment), we could see a
              move back to an upward trend late July or early August.
              • Either way, wheat will have to maintain global acres in
              2009. To do that wheat will have to be competitive in
              October, when winter wheat is being planted in the
              northern hemisphere. Prices could easily peak at that
              time, as they did in October 2005, October 2006 and
              October 2007.
              • Prices are then likely to drop away leading into our own
              harvest, as in fact they did in each of the last three
              seasons as well.
              Strategically I think this means that we begin sales of
              physical wheat in October to capture what is likely to be
              the highest prices (as measured on CBOT futures) for our
              harvest period.
              We then go into harvest with some wheat to deliver, and get
              paid for, so that we have flexibility to decide what to do
              with the rest - either more sales off the header, into a pool
              or storing for later sale.
              Costs of Storing Grain Before you plan to hold a lot of
              grain over from this harvest, to market in the newderegulated post harvest markets for wheat and barley,
              make sure you know what your costs are.
              The last time we had a “normal” crop was 2005. In that
              year the interest cost in holding wheat or barley until July
              was about $5/t. This year, with higher interest rates, and a
              much higher grain price, the cost has blown out to about
              $15/t.

              Warehousing
              If you use a grain broker to find a buyer for
              you, a $25/t increase in the silo price from harvest might
              only generate a lift in net return for you of $5/t. That is a
              very small margin for the risk of holding grain.
              On Farm A lift in the on farm price for grain of $38.67/t
              from harvest to July looks impressive. However, after
              allowing for all costs, the profit margin may only be $9.09/t
              from that $38/t. You do pay yourself the storage costs
              though.

              VERY INTERESTING THOUGHTS!

              Malcolm provides some very logical and relevant info... GET HIS NEWLETTER... in this age of global markets... you can't do better!

              Besides... tell him I told you to... and he might end up sending you a case of his wine... if you pay the freight!

              "Any client who introduces new subscribers to us (one or
              more) will receive a case of stunning “Limestone Hill”
              Shiraz, Cabernet Franc, Malbec, from our own vineyard in
              the Clare Valley. I will even throw in a bottle for the new
              subscriber.
              I will be a happy man if I can get new subscribers and
              deliver some wine as well. Everyone wins a prize!
              Ring the Adelaide Office on (08) 8269 7435 or the mobile
              on 0411 430 609. Any new subscriber will have to name
              you as the person recommending them to us.
              If you would like a case anyway, it will cost $96 plus
              postage." Tell him Tom Jackson will give his case to anyone who subscribes!

              I just want the CWB to know... how much I appreciate their lack of global marketing knowledge... and have 'designated area' grain growers on par with Aussies!!!

              Comment


                #8
                Callum Downs is a good newsletter and worth reading.

                Hopefully nobody considers me negative. Hard to be that way with close to $10/bu wheat.

                I realize the yield side is under question in Canada and Australia. Equally important to me will be the quality side this fall. World needs milling quality and the feed side represents a vacuum that will suck up any feed wheat (and perhaps up into the 3CWRS/CPS/CWRW). You can add in the beginnings of an wheat based ethanol industry in western Canada.

                Comment


                  #9
                  Most of aust cropping areas have had reasonable falls or will have by the end of the week which will see us through for another month or so.
                  We seem to getting rains just in a nick of time.

                  NSW has a completly different drought recording system that the rest of aust.
                  If a shire or district council area has more than a 30% rainfall deficiet from average for a month it becomes drought declared,hence parts of NSW are always in drought.
                  Imay not have that completly correct but it something like that.

                  jan/feb/march here were basically zero rain and if i lived in nsw would have been according to the media in perilous drought, so take nsw stuff with a grain of salt, but on the flip side parts of NSW do need a good drink which i think they had last night.
                  I

                  Comment

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