No wonder GrainCorp shares have slid in the past month – the Australian wheat harvest is being hit by record dry weather, the huge American crop is under pressure and not even rising prices in the world’s biggest grains market – Chicago can offset the rising concern of investors.
GrainCorp (GNC) shares have fallen from the most recent high of $A10.53 on June 5 to $A9.35 on Monday – a drop of 11.6%, against a 1.2% fall in the ASX 200 in the past month.
Driving the slide is the growing drought in parts of South Australia, Victoria and especially Western Australia where winter rains have been mostly absent for the past month to six weeks.
In Australia, the National Australia Bank cut its estimate of the current Australian crop to 23.3 million tonnes from 24.4 million previously and the record 35.1 million in 2016, the all time high.
On top of this a bigger influence – drought in many of the northern wheat growing states of the US which has seen a rapid surge in US wheat futures.
In fact US wheat futures rose strongly for a 5th day overnight Monday, hitting their highest level in two years as continuing dry weather cut estimates of the size of the US and Australian crops.
Wheat futures in Chicago saw prices trading ‘limit up’ during the session, meaning they rose by the amount allowed by the exchange during the session.
After touching a high of $US5.56 a bushel on the Chicago Board of Trade, September wheat futures settled at $US5.55 a bushel, up 29 cents or 5.5%. Prices haven’t finished at a level that high since mid-July 2015, according to data group, FactSet.
That was after a 4% plus surge last Friday after the US Department of Agriculture released its latest estimates for the US Spring wheat crop showing the amount sown to wheat will be the lowest since 1919.
Dry weather in the northern US states has cut plantings for the spring wheat crop with the latest forecast calling for above-normal temperatures and below-normal precipitation for those growing areas..
The USDA lowered its acreage estimate for US wheat plantings to the lowest on record since 1919.
It said “All wheat planted area for 2017 is estimated at 45.7 million acres, down 9 percent from 2016,” The USDA said. “This represents the lowest all wheat planted area on record since records began in 1919.”
“The 2017 winter wheat planted area, at 32.8 million acres, is down 9 per cent from last year but up less than 1 percent from the previous estimate,” the agency added.
But locally it’s the severe dry conditions across Australia’s grain-growing regions have seen forecasts for this year’s wheat crop slashed, as some parts of the country received their lowest June rainfall on record.
The latest monthly drought statement, released by the Bureau of Meteorology on Monday (http://media.bom.gov.au/releases/370/bureau-of-meteorology-climate-outlooks-for-july-to-september-2017/), said June rainfall was below average for most of Australia, while it was the “lowest on record for much of inland northern and northeastern Victoria, adjacent inland southern New South Wales, southwest and western Western Australia, and eastern Tasmania”.
Big red blotches on the Bureau’s map indicating “lowest on record” rainfall for the three months to the end of June now cover large areas of WA’s grain-growing regions, in the Bureau’s statement. WA produces more wheat than any other state in Australia, hence the downgrade by the NAB.
And looking to September, the Bureau forecast more of the same, saying it expected “Below average rainfall is likely in parts of the southeast and southwest of the country."
