2021 – what a year for commodity markets. Australia has been fortunate with many regions experiencing average to above-average crops with drought level pricing. This has led to the most profitable year on record for these grain growing businesses. However, the 2021 marketing year was not without its challenges.
There have been many conversations over the past four months that have looked back into the past with longing for the return of the simplicity of the single desk. In the early 2000’s, grain marketing for the entire Australian crop was done by one or two companies with pools the main option for marketing grain during this time. Since this period though, grain markets have operated on the global stage and resulted in increased price volatility. While this volatility can be frustrating is also creates opportunity.
So what factors are driving price volatility:
- A move from ‘just in time’ to ‘just in case’. Pre COVID, much of the global trade worked off a ‘just in time’ system of freight. But uncertainty in supply chains, lack of shipping containers and longer turnaround times, have meant many importers have shifted their view to a ‘just in case’ model, lending itself to greater stockpiling.
- Weather driven markets. The Canadian drought had a significant impact on pricing. Pre-June we were looking at some of the highest global stocks of cereals on record. However, after hot, windy, dry weather across the Canadian prairies, we were suddenly looking at the lowest stocks in years. We also experienced canola production at an all-time low and lentil stocks positive to Australian pricing. The speed at which the situation changed, shows that weather will never be completely predictable or easy to manage and markets will continue to react in big ways to any threat to production.
- Food security becomes number one. Empty shelves due to panic buying is an image that had become synonymous with the pandemic. This coupled with concerns over drought in North and South America has meant many countries have now renewed their focus on ensuring ample stocks through difficult supply periods, including pandemics, drought, or slow logistics.
- Higher prices mean larger movements. Sellers have been lucky to see typically drought type pricing throughout periods of the last twelve months, but unfortunately this also sees larger fluctuations in pricing. Acting like pulse markets, it was not uncommon to see $10/t price movements in a day for cereals, where previously $1-2/t movements were the norm.
- Russia's war on Ukraine. One of the greatest market disruptors since we have moved to a deregulated market. The unpredictable nature of this event, and the flow on impacts to supply chains and global markets has been extreme. This is an event that will go into the history books and one that has had a significant impact on global volatility.
2022 will be a different year to the last, but it will be shaped by the experiences within global markets of the last two years. These will continue to have a bearing on the marketing of bulk commodities and require monitoring to identify opportunities. The market moves quickly, so make sure you’re on the front foot with support around you to help manage the constant volatility.