The Christmas Rain Gauge | Newsletter

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Newsletter | Thursday 24 December 2020

What a year!
Well you would have to say 2020 has been the most astonishing year we have had perhaps in living memory for most. Rain Ag was no exception – we had the drought, then the rain, and then COVID-19 and dramas with China, we had one of the smallest cotton crops in decades and one of the biggest winter crops ever.

Through thick and thin our customers have stood by us and it’s turned out to be a pretty good year for most. We would like to say a big thank you to all those who did business with Rain Ag in 2020 and invite new customers to give us a call in 2021. We wish everyone a very Merry Christmas and we look forward to doing business in the New Year.

Cotton Market - by Alex Lucero

Just last week, cotton futures reached the highest level for a most-active contract since April 2019. This rise in price largely comes from the fact that we are becoming more and more certain that the US is going to have no problem exporting their cotton meaning there is plenty of demand. Other reasons for this price increase are Brazil, the second largest cotton exporter, being faced with both a smaller harvest and higher domestic demand. Pakistan, a key cotton importer has also increased their purchases after their production dropped. Prices have also squeezed higher as the US dollar has been weak in recent times. All these factors have seen cash prices reach $550 once again and with a little more certainty with the lowest we're now seeing around $535, up from $530.

Aussie basis has dipped a little further and as mentioned in the previous Rain Gauge, these levels will likely be here to stay for a little bit due to these levels working for merchant exports. Further from a trade perspective, things might be looking up! Australia announced on Monday that they will pursue trade agreements with Israel, Latin America, Switzerland, Norway, and Middle Eastern nations next year and is already in agreement talks with Britain and the EU in a move to open up new export markets for us after China's targeting of exporters.

The only thing we need to get under control is the incredible run of the Aussie Dollar which has increased over 3% this month to levels in the high 75's to low 76's. This increase in the Australian dollar can largely be pinned on two things, the first is the weakening US dollar over the last few months and the second is the immense surge of iron ore prices which has risen around 70% year-over-year to where it is now at around $160/t. This is because the Aussie Dollar is known to track global commodity prices (due to the fact that we are a big exporting nation, iron ore exporters even more so). It will be interesting to see what unfolds over the next few months in regards to the Australian Dollar, on one hand, Brazil's struggle to get their iron ore production moving again due to COVID and natural disaster’s will keep iron ore prices afloat for a while but on the other hand, we need our dollar to decrease if we want to remain 'export-competitive', something the RBA may have to step in and deal with in which if they do and if they can suppress the rising dollar, this is something our domestic commodity prices across the board will favour.

From a fundamental viewpoint, forecasts remain the same with US, China and other major producers to drop production from last year while demand increases just the same, even more so if vaccines can get rolled out over the next few months and economic recovery can begin to speed up. If Australia can open new doors to new exporting markets, this supply/demand movement will be met with open arms and ideally, attractive prices. If not however, it will come down on what China's next move is and what export they may target next.

COTTON ICE FUTURES
US76.66c/lb (May 2021)

Range last 30 days
71.97 - 78.08

Current AUD/Bale price
2021 - $540
2022 - $520

AUSTRALIAN DOLLAR
AUD - Current 75.95

Range last 7 days
74.89 - 76.34

We look forward to letting you know some of the exciting new ideas and developments for the Raw Cotton Australia business in 2021. We built this business on the back of feedback from you and we would like to encourage you to be involved as we further develop it into the future.

For more information on this option please see www.rawcotton.com.au

CHICKPEAS - chickpeas soft now but stronger for the long term

With the combination of a good start to the Indian growing season, plentiful old crop supply and a strong $AU, it is hard to find any positives for the Chickpea market in the coming months. But one factor that is on our side in the future is the fact that worldwide consumption is gaining momentum year on year, and we know from history India will find it hard to keep supply at good levels for world demand. The following factors are definitely on our side, for bigger prices and higher demand and some

Indian’s population is expected to grow a further 25% on current estimates by 2050 increasing chickpea demand.
India is currently 55% to 60% of world consumption and is a large producer of chickpeas as well.
India will also fall into China’s population problem, where the bigger the population gets the less arable land is available due to urban sprawl. (India is running out of new land to develop so they can feed the nation).
The increase in population in India alone will increase demand by at least 4.5mmt of chickpeas if current consumption levels per capita are to be sustained.
Pulse’s in general are one of the cheapest forms of edible proteins in the world and as a result are becoming more popular in many countries as meat proteins become too expensive.
India alone will need other producing countries like Australia to support supply in case of crop losses due to droughts and floods.

The Chart below shows us that imports of Chickpeas globally are going higher at a much greater rate than world production meaning that the reliance on other nations like Australia to produce chickpeas are becoming greater year on year.
The Red circle on the below graph is showing the estimated return of global demand with a higher production estimate for the next cropping season.
The Orange on the below graph is also show that prices in Australia are generally moving higher over time. This trajectory is expected to continue based on the stronger demand forecast in the coming years.
With India producing a large amount of the crop each year this leaves supply at bigger risk to lower production year due to less geographical spread. All it takes is a bad monsoon season and demand for chickpeas will be back to record levels (creating a great opportunity for Aussie farmers).

RainAg is optimistic about the future of the Chickpea market as global consumers become more reliant on countries like Australia producing enough to feed some of these developing nations.

New Crop 20/21: DESI #1’s Delivered Downs Jan-20, $555/mt Wee Waa, $535/mt, Narrabri $540/mt, Goondiwindi $535/mt, Narromine $525/mt. CHICKPEA M Narrabri $450/mt, Goondiwindi $465/mt, Dubbo $450/mt.

WHEAT - things to consider

It is amazing how quick things can turn around. It wasn’t that long ago most growers where talking to their bank managers monthly, trying to convince them that things will be ok, “we just need a bit of rain”. Now most growers are possibly talking to their accountants trying to manage the cashflow so that tax is not an issue. I, and all the team at Rain Ag are glad that most of our customers and mates are starting to get things back on track. This change in fortune has made many now start thinking about maximising returns not minimising spending. Some of the option’s that are being utilised to do that are:

Not selling. Either storing on farm or the bulk storage system (GrainCorp).
Selling as soon as they harvest (cash prices have been pretty good considering we have had the biggest crop on record in NSW).
Dropping wheat into a managed pool.
Hedging futures and waiting for our domestic basis to recover. (not many doing this as not everyone is tracking basis).

These are just a few things that are out there, and I am sure I have missed a few. I would suggest we have a very large number of growers doing #1 & 2 as traditionally this has been the way most would handle a market, they think is either going lower or think that you hold for better prices. Option #1 has left you with maximum risk but also maximum upside and #2 has left you with zero risk but no upside.

#3 has was very popular in the AWB one desk years but now is less popular. Things have changed a little as there are more pool players, but each pool is slightly different. You need to get into the detail with a pool as many of them can be managed totally differently. Some of the things to what out for are:

Is the pool fully hedged (using futures or derivatives as in some cases you may still be exposed to movements in the market if it is not hedged)?
Do you get individual returns or is it a average price? Some pools will give you a price based on your entry date and the day it is hedged verse an average price.
Payment schedule? Can I defer cashflow or is it flexible enough to get cashflow earlier.
When is the pool finalised? Some pools will have a set date, others are flexible based on market conditions.
Pool estimates. Can I get regular updates to manage my budget?

#4, if you watch the market a lot and you have hedged or have considered it you might have notices a few things that are in your favour at the moment. One of these is that Futures is close to 6yr highs but both the $AU and the basis is dragging our cash prices back. This is something that hedging can help with as you can isolate those 3 factors (Futures, $AU & Basis) and also potentially eliminate some risk. I am not good at picking the $AU so I stay away from any risk there by hedging. But looking at basis we are in a big crop year so you should expect a lower basis at harvest (which is the case) but history tells us that a negative basis doesn’t last forever so later in the year once most of the bulk of the crop is shipped we should expect a better basis (this is like you storing grain and selling later). The thing I like about this is that the futures component is a big part of your price and you can eliminate a lot of downside risk by hedging. (If you don’t want to look at this you can still have the same cover by getting into the right managed pool).

From myself, and the team I hope you have a Merry Christmas and a Happy and prosperous New Year!

Santa is arriving and will deliver higher wheat prices in the new year, ho ho ho!

Allow about 3c to 6c for delivery depending on your proximity to the port.

Fuel orders - we can’t do business unless you are approved for credit with our third party supplier. Once the form is returned, approval can normally occur within 24-48 hrs. Click here to download the form CREDIT APPLICATION.

Once you have filled out email to admin@rainag.com.au and we will fast track the application for you.

SPOT US! - 2020

SPOT US! is changing it's name to "RAIN ON THE ROAD" in 2021 - some great random places and pics coming your way, and a brand new prize... it's a bit easier to mail a hat out than a carton of beer...!

Rain Gauge Caps sporting the Rain Gauge's very own logo... the new prize for the Rain on the Road section! Keep guessing where the Rain Ag team members are for your chance to win!

If you are a previous winner, and didn't receive your original prize, let us know, and we'll get a cap out to you.

WHERE'S WHANNY?

The first person to correctly identify where Tim Whan is in the photo to the right (by return email) will receive a newly designed Rain Gauge Cap after their next business transaction with Rain Ag.

Congratulations to Matt Tolmachoff who correctly guessed that Growler was visiting the Codfish Hotel in Yetman. Well done Matt!

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