Testing Times in WA as Rains Prove Elusive

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Following one of the worst droughts in history last year, summer rainfall has been average through most of the south west, with typically limited rain falling through most regions. Currently only Mullewa, a small area around Nungarin and the southern regions have available plant moisture, leaving growers to rely on rain during the season. Projections based on the last ten years of rainfall, combined with current stored soil moisture levels, indicate a decile 3-4 year.
Both the Bureau of Meteorology and the Department of Agriculture and Food are predicting a dry start to the season with below average rainfall through May and June. Sea surface temperatures are warm to the west of WA and cool to the north, blocking fronts and limiting rainfall to the south coast. Barometric pressures, which were below average during summer are now rising and are also reducing the impact of fronts passing through.
As the year progresses, models vary, with equal chances of above and below average rainfall through the balance of the season (WA's new statistical season forecasting model indicates average to above average rainfall).
In summary, conditions do not appear favourable for 2011. But it's not all bad news: with wheat estimated to rise above $300/t by year end, prices should cushion the potential impact of below average yields.

COMMODITIES
WHEAT
Last week's release of the USDA Supply and Demand report (and the negative market reaction to it) did little to assist wheat prices. However, global stocks remain tight and the next three months of the growing season will determine if supplies dip further or rise steadily back to more comfortable levels.
Corn prices have been driving down the wheat price as good growing conditions continue across the US corn belt. In line with Chicago's downward run the local cash market has unwound by $20/t over the past five weeks. But it's important to note that basis has remained static, with the delay in opening rains playing a small but obvious role here.
BARLEY
Barley has enjoyed a solid increase over the past three weeks (up nearly $20/t) and the spread has closed by a few dollars. The uplift in malt prices was driven by an expected increase in consumption of nearly 2%. The closing of the spread was largely due to a revaluing of feed grade barley against feed grade prices offered for wheat via the current APW2 and N1 multigrade contracts.
CANOLA
The canola cash price has continued its recent upward climb and is currently nudging $615/t. The temporary increase in soybeans stocks appears to have done little to dampen global values, while an improvement in local canola prices is being driven by a depreciating $AUD to $CAD rate.
LIVESTOCK
As farmers begin to exit livestock to make room for the cropping program, prices have softened across the board. With much of the processing pipeline already committed, there has been limited demand for the remaining animals on offer which, in turn, is applying further downward pressure on prices.
WOOL
After a brief fall earlier this month wool prices have now recovered, with the EMI currently sitting at 1323c/kg. As supplies continue to increase due to the high prices on offer it's likely that wool will start the 2011/12 financial year at its lowest stock levels on record.