As one the world’s largest consumers of agricultural commodities, the state of play in China is crucial to Australia’s outlook.
The Chinese corn market in particular is a key barometer for Australian feed barley and sorghum demand, as China imports these corn substitutes to top up its feed requirements.
The recent trade dispute between the United States and China is also expected to work in Australia’s favour.
In March, the Trump administration announced it would impose tariffs of US$50 billion on Chinese goods into the US. In retaliation, the Chinese government imposed tariffs of their own on more than 128 US products, most notably soybeans.
Eddie Co, Glencore Agriculture’s Country Manager for China, said Australia was likely to pick up additional market share as a result of the US-Chinese trade conflict. Importantly, Australia enjoys a tariff-free relationship with China.
“US soybean imports into China hit 36mmt in 2016/17 while sorghum was around 4.7mmt and wheat 1.5mmt,” Eddie said.
“With the 25 per cent tariff applied to US products – all US grains and oilseeds are on the product list – it will make US corn and sorghum totally uncompetitive for export to China.
“That opens up a lot of opportunities for Australia. Barley won’t gain too much as the local corn release will satisfy most demand, but more market share will open up on sorghum and wheat.”
Eddie said sorghum’s high price may affect its competitiveness into the feed market, but was attractive for distillers who use sorghum to make the highly popular Baijiu spirit.
“With the large feed grain deficit on the east coast, Australian sorghum is commanding a higher starting price. This will make it uncompetitive compared to local corn for feed usage.
“But for alcohol making, there is the potential to add an additional 500,000mt to Australian exports in the absence of US exports.
“And for hard wheat, this opens up another 250,000mt for Australia at the expense of the US.”
China is the world’s largest importer of soybeans. Eddie said with the substantial omission of US soybeans, the Chinese protein meal market will be in deficit of about 16mmt before the Brazilian crop comes on.
“The domestic meal future market is going up strongly.”
Own production
According to USDA statistics, Chinese corn production is headed for a record 225mmt in 2018/19. Consumption is also growing rapidly with another eight per cent increase expected for the coming year to 249mmt.
At the same time, China’s corn stocks have been on a downward trend in recent years and will drop to 60mmt – its lowest level since 2011/12 – bringing more opportunities for corn and corn-substitute exporters.
The USDA figures confirm this, with China’s barley imports expected to be at a historically high 9.5mmt, along with 4.7mmt of sorghum.
Australia is headed towards a below 9mmt barley crop in 2018/19 – of which about 4.5mmt will be exported. Sorghum exports are tipped to be about 1.1mmt of the 2mmt crop – most headed to China.
Flush with wheat
China is forecast to produce another large wheat crop in 2018/19, with early predictions at a near-record 129mmt. With consumption expected to be 120mmt, that will add even more to their already large stocks of 126mmt.
China’s wheat imports will therefore be minimal, with only 4mmt forecast for 2018/19.
Six per cent of Australia’s wheat crop has gone to China so far in 2017/18, however the upcoming opportunities available from the US tariffs may change that.