Inside Grains & Commodities
Australian exports suffer from Chinese import ban
Although the causes of the trade tensions between China and Australia lie mainly outside the commodities market, these markets are currently suffering the most. For example, government agency ABARES reports that barley is particularly affected by the Chinese import tariff of no less than 80,5%. The biggest beneficiaries of the situation are the United States and Brazil.
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Choose the subscription that suits youThe Australian ministry writes that the share of Australian exports to China in the 2019/2020 season varies considerably between the different raw materials: from 10% for wheat to 79% for wool. However, after China imposed an 80,5% export tariff on Australian barley in May, sales have virtually stopped. It is a loss for exporters, especially because China has a very high demand for grain products this season. Chinese grain consumption is expected to increase by 2% to 302 million tons. This is due to reasonably stable control of the coronavirus and the continued recovery of the pig herd.
Despite China's grain production reaching near-record levels, it is still not enough to meet domestic needs. As a result, Chinese grain imports for the 2020/2021 season are expected to increase to a record level of 26 million tons (+49% compared to last year). Chinese stocks are reported to have fallen by 4% to 192 million tonnes. In addition to China, the United States also shows a significant need for imports. As a result, global grain stocks will fall by 3% to 321 million tons, according to Abares, the lowest level since the 2014/2015 season.
Brazil and the United States benefit
Brazil is one of the beneficiaries of the trade tension between Australia and China. For example, China imported record volumes of soybeans from Brazil in 2020, boosted by the weak Brazilian real. However, now that Brazilian prices are higher than American soybean prices, Chinese import demand is shifting. Chinese purchases of soybeans from the United States are expected to continue in 2021. As a result, the likelihood that China will achieve its purchasing targets (as part of the trade agreement with the United States) is also increasing.
A fear for Australian exporters is that China too an import tariff imports wheat from the country. Historically, China has not been a very important market for Australian wheat exports, but high domestic grain prices in China mean China's total wheat demand is likely to be the highest in about 25 years (8 million tonnes in the 2020/2021 season). That demand will probably be met by wheat from the United States and the Black Sea region. In short: it could be a huge missed opportunity.