Faba Beans Forecast: The Price Floor Has Moved Higher.

Simon Hutt

Jun 30

8 min read

It has been some time since GrainSource last published a faba bean market update.

That is not because nothing has been happening. Quite the opposite.

For much of the year there were simply too many moving parts to form a confident view of where the market was heading.

The biggest uncertainty was the Middle East.

Our assumption was that commercial interests would eventually outweigh politics. Large corporations want stable supply chains, and we expected that pressure to eventually contribute to a resolution.

While the conflict remains unresolved, grain and pulse markets have largely adapted.

Shipping lines have already diverted away from the Red Sea, freight and insurance markets have repriced risk, and much of the additional execution cost is now embedded throughout the supply chain.

The Middle East remains an important risk, but it is no longer the only story driving markets.

Attention is now returning to the fundamentals that ultimately determine harvest pricing: Australian production, grower selling behaviour, domestic demand and Egyptian import requirements.

The question is no longer whether prices will be influenced by conflict.

The coming months are likely to be a negotiation rather than a liquidation.

Buyers will continue looking for value. Growers will continue waiting for it.

The market will ultimately determine where those two views meet.

ABARES: Lower Production, Not Lower Plantings

ABARES is forecasting Australian faba bean production at 874.7kmt, down from 1.02 million mt last season.

That represents a decline of around 14%.

Importantly, this is not a planting story.

National faba bean area has remained relatively stable. The reduction is almost entirely the result of lower expected yields rather than growers abandoning the crop.

That distinction is important because yield remains uncertain.

Good spring rainfall could still improve production prospects, while a timely dry finish would support harvest quality. Equally, a poor finish would reduce both yield and quality.

The market is therefore trading production risk rather than a fixed production number.

NSW remains the key state to watch.

ABARES has NSW production falling from 430kmt last season to 323kmt this year, a decline of almost 25%.

That accounts for most of the reduction in national production

Victoria and South Australia are in a better position, although both still require follow-up rainfall and favourable spring conditions.

Western Australia is forecast to produce a larger crop than last season, but it remains a relatively small contributor to Australia's overall faba bean balance sheet.

At this stage, the current crop does not look like a disaster - nor does it look like another surplus.

That alone changes the pricing discussion.

Why GrainSource Expects Higher Prices

Lower production is supportive.

It is not, however, the main reason GrainSource expects higher prices into harvest.

The biggest change over the past twelve months has been the cost of production

Fuel costs have increased.
Finance remains expensive.
Chemical costs remain elevated, and fertiliser has become one of the biggest concerns for broadacre growers.

Urea is a good example.

Supply uncertainty from the Middle East has highlighted Australia's dependence on imported nitrogen (N), increasing both pricing and availability risk.

Even where product is available, growers now recognise that urea and fertiliser costs can change rapidly when global supply chains are disrupted.

Ironically, higher urea costs have also improved the relative value of pulses.

Unlike cereals, faba beans require little or no applied N and contribute valuable N back into the farming system for following crops. As urea prices rise, that rotational benefit becomes increasingly valuable

Growers are no longer assessing faba beans purely on the harvest price. They are also considering fertiliser savings, rotational benefits and whole-farm profitability.

That changes the economics of selling.

The result is simple.

The minimum price many growers are prepared to accept has moved higher.

The market can debate exactly how much production costs have increased, but the commercial outcome is becoming increasingly clear.

The grower selling floor has risen.

Selling Versus Holding

The market is increasingly running into a higher grower selling floor.

Last season, many growers sold grain because prices reflected the market available at the time.

This season is different.

Higher production costs, greater seasonal uncertainty and improved domestic demand mean many growers are in a stronger position to hold grain if values fail to meet expectations.

Where cash flow allows, growers are likely to become more selective sellers.

That does not mean grain will not move at harvest. There will always be selling pressure as growers generate cash flow and create storage space. However, we expect much of that selling to be measured rather than aggressive.

The market may need to bid higher before significant additional tonnes become available.

This is an important shift.

Last season the market was largely asking how low prices needed to fall to find demand.

This season the more important question may be:

How high do prices need to rise before growers are prepared to sell?

What's changed since last season?

Indicator	GrainSource View
🇦🇺 Australian production	▼ Down 14% (ABARES 1.02 Mmt → 874.7kmt)
🌱 Plantings	► Largely unchanged
🌾 Yield outlook	▼ Lower, particularly NSW
⛽ Grower input costs	▲ Higher
🧪 Nitrogen fertiliser	▲ Major cost concern
🚢 Export execution costs	▲ Higher
🐄 Domestic feed demand	▲ Stronger than last season
🌍 Egypt	? Biggest unknown
💰 GrainSource harvest guide	Mid $500's per/mt

GrainSource Confidence

Price Direction: ★★★★☆ (High)

Price Magnitude: ★★★☆☆ (Moderate)

Biggest Unknown: Egyptian import demand

Domestic Demand Has Improved

Export demand is only one side of Australia's faba bean market.

Domestic demand has quietly become a much more important influence on available supply.

Faba beans have remained competitively priced against alternative protein sources, encouraging greater inclusion in feed rations across the livestock sector.

Feed manufacturers and domestic consumers have steadily absorbed grain that might otherwise have remained available for export.

That changes the carryover story

Not every tonne sitting in a grower's silo is available to exporters.

Some grain is being retained for feed.
Some is being held as drought insurance.
Some has already been sold into domestic markets.
And some remains on farm simply because growers believe current prices do not reflect its value.

This distinction matters.

Headline carryover figures often overstate the volume of grain that can realistically be drawn into export channels without higher prices.

Physical supply is not the same as willing supply.

Warda Stocks and Carryover Need To Be Viewed Properly

There has been considerable discussion around remaining NSW Warda stocks and the amount of carryover still held on farm from last season's bumper crop.

At first glance, those stocks appear bearish because they represent grain carried over from one season into the next.

We believe that interpretation is too simplistic.

Last season's crop exceeded annual export demand, leaving some surplus stocks still held on farm. However, much of that grain was retained because growers chose not to accept export prices they considered too low, rather than because demand disappeared.

Those stocks have also provided growers with valuable marketing flexibility.

Unlike export markets, the domestic feed sector has little preference between old and new crop - livestock feeders are buying protein, not crop year.

That allows growers requiring cashflow to progressively market older grain into the domestic feed market while continuing to hold grain that does not meet their value expectations.

As a result, remaining carryover has been steadily absorbed rather than released into export channels in large volumes.

Carryover only becomes bearish if growers become motivated sellers, and at this stage we do not believe that is the case.

Warda itself also offers exporters an important commercial advantage. Its earlier harvest window allows Australia to target Ramadan demand ahead of many competing origins, creating additional export opportunities and giving the variety value beyond simply being another source of supply.

The question, therefore, is not whether Warda exists.

The question is what price is required to encourage its release.

Our expectation is that remaining stocks will continue to move progressively rather than flood the market. Unless values improve to levels growers consider acceptable, we do not expect large volumes to suddenly become available.

The industry is not facing a shortage of physical grain. It may, however, face a shortage of grain offered for sale at prices buyers would prefer to pay.

That distinction could become one of the defining features of this marketing year.

Forward Contracts Should Carry a Premium

Forward contracting is also likely to look different this season.

Forward contracts require growers to commit grain before harvest, while both yield and quality remain uncertain. We believe that risk carries greater value than it has in recent seasons.

If spring conditions deteriorate, yields may fall. If harvest quality is affected, growers still carry the obligation of meeting forward commitments.

That risk has value.

For that reason, we believe forward contracts need to include a genuine production risk premium this season

Buyers looking to secure early tonnes should not expect growers to accept harvest-equivalent prices while significant seasonal uncertainty remains.

Until production risk has largely been removed, forward grain should attract a premium over expected harvest values.

That does not mean every grower will forward sell, nor that every buyer will pay the same premium.

It simply reflects the commercial reality that risk has a cost.

Egypt Will Determine the Ceiling

GrainSource expects Australian faba bean prices to move higher into harvest, with our current guide at the mid $500's per/mt delivered Southern Port Zones.

At present, we believe the market will struggle to attract meaningful grower selling below those levels.

Production is forecast lower, grower costs have increased, domestic demand has strengthened and forward contracts continue to carry meaningful production and quality risk.

Egypt will determine whether prices simply trade into that range or move beyond it.

The key variables remain the size and quality of Egypt's domestic crop, government purchasing activity, currency availability, import finance, competing origins, freight costs, landed import values and the timing of Ramadan procurement.

At this stage, we do not see evidence of an Egyptian surplus large enough to remove import demand altogether.

That does not mean Egypt will immediately return to the market.

Buying can still be delayed by finance, currency or competing supply. But delayed buying is not the same as lost demand.

Egypt remains the world's largest importer of faba beans and will continue to play the dominant role in setting export values for Australian growers.

The question is less about whether Egypt buys, and more about when and at what price.

GrainSource View

Markets rarely move because of a single factor. This season, several supportive forces are aligning at the same time.

Australian production is forecast lower.
Grower costs have increased.
Higher urea prices and greater uncertainty around nitrogen (N) supply have increased the rotational value of pulses.
Domestic feed demand has improved.

Last season's carryover has provided growers with cashflow through the domestic market, reducing the pressure to sell export-quality grain at values they consider too low.

Harvest will still bring periods of selling, as it does every year. But we do not believe growers will be forced sellers simply because harvest has begun.

That changes the dynamic for buyers.

For the past twelve months, buyers have largely been able to wait for grain to come to them.

We believe that strategy is becoming increasingly risky.

The market is moving from one driven by available supply to one driven by grower willingness to sell. Those are not the same thing.

The coming months are likely to become a negotiation rather than a liquidation.

Buyers will continue looking for value. Growers will continue waiting for prices that reflect their higher cost base and production risk.