The past season has seen a dramatic shift in the price ratio between grain and sheepmeat (see Chart of the Week). This week one of our subscribers asked us to examine where the breaking point may be and whether we will likely see a wholesale shift away from grain planting this year. Our immediate gut-feel was that even though margins for many on grain enterprises had slipped into negative territory in 2009/10, it may take another season at least for producers to react. Certainly the evidence from the Nth hemipshere is that growers have largely stuck with heavy grain plantings, notwithstanding falling prices and the dim medium term outlook. The only trends we can pick up is some moderate shifts in plantings across the different grains according to the gross margin outlook.

The fertiliser markets have been relatively stable through the second half of 2009 and into early 2010; although fertiliser prices are displaying some strength as we move through early 2010 especially DAP prices which have risen sharply. Global urea prices finished 2009 on a slightly positive note and this trend is expected to continue through into at least first quarter 2010 and perhaps first half 2010. 2009 was a difficult year for the industry as it de-stocked high priced inventory and farmer use declined. However, with prices now more stable and with a positive tone, re-stocking could lead to further gains in the next few months. Constraints with natural gas supply in FSU and Eastern European and solid demand out of Latin America as well as needs in the US itself (next corn crop) and inventory re-stocking should underpin prices. Upside in April/May could push prices above the January highs as requirements peak for Northern Hemisphere summer crops and Southern Hemisphere winter crops (not that they account for much).

It was another very mediocre result in our greasy wool market last week that has left some wondering if this supply shortage will actually give prices a bigger push. The official indicators barely moved by the close of the week. The east finished 4? lower to close at 915?/kg while the west finished 1? lower to 924?/kg. What the hell is going on then? We all know that domestic supply levels have fallen dramatically and will continue to do so in coming months. Under most commodity trading situations this would drive the market into a strong trading period. Unfortunately this has not happened for wool. Basically we are left in a situation where even supply at historical lows is not enough to stimulate very subdued demand. Throw in the natural financial volatility of the wool market and economic fallouts of the GFC and it equals some tough conditions to fight against.