SYDNEY, AUSTRALIA — The first six months of 2022 have been a boom for Australian grain producers. Global supply shocks and strong demand have culminated in high prices that have wiped away the downturn experienced by China’s 80.5% tariff on malting barley flagged in November 2018 and implemented 18 months later.
Previously, this had been a large lucrative market that paid a premium to other export destinations, and according to Denis Voznesenski from Rabobank, led to a 14% decline in feed barley prices in May 2020 when the tariff was implemented.
“Australian exports to China quickly dried up, as did our malt barley premium over feed and more of our barley had to be redirected toward feed use in the Middle East and Asia,” he said. “All states saw declines, with both domestic and export dominated states being impacted similarly in terms of pricing. As a more export exposed cropping region, Western Australia felt the biggest impact of a slowing and then redirected export task.”
Pat O’Shannassy from Grain Trade Australia told World Grain immediately following China’s announcement in November 2018 forward sales stopped as the market took a cautious approach with malting barley exports to China.
“The market reacted with the price dropping fairly quickly,” O’Shannassy said. “There was a lot of forward business done, and so there was considerable risk and uncertainty for existing contracts that had been sold but not executed.”
O’Shannassy pointed out that even though there were some areas of concern with existing sales, the market worked through them and effectively stopped all sales of Australian barley into China in November 2018.
“The tariffs cemented this position with the market saying, ‘that’s it then,’” O’Shannassy said.
The immediate concern was finding alternative export markets for Australian barley with many eyes turning to Saudi Arabia, which buys 2.5 million tonnes of feed barley every year, making it the world’s largest buyer of feed grain.
“Looking at grain statistics, the flow of barley that went to China effectively went to Saudi Arabia,” O’Shannassy said. “Barley also sells into Thailand and Vietnam, and we’ve gained some markets in South America and Mexico.”
O’Shannassy said on one level this looks like a “reshuffle of deck chairs,” but it comes at a cost to the Australian industry as these markets don’t pay the premium that China did. He estimates growers could have received $30 per tonne more if China did not impose the 80.5% combined tariff. He pointed out that criticism of the industry relying so heavily on one market was simplistic because China paid the highest price in the market.
“Concentration in China was because when each exporter looked to sell, it was to the highest paying market,” O’Shannassy said.
Speaking to World Grain, Jay Craig, chief marketing and trading officer for Western Australian bulk handler and marketer CBH Group, agreed the industry had moved on from the Chinese market, instead of expanding primarily into Saudi Arabia but also into Thailand, Vietnam, Japan, Central America and South America.
“Prices came off at the time of the announcement, but the market has fundamentally changed since then,” Craig said. “In 2021, Saudi Arabia accounted for 35% of Australian feed barley exports, making it the No. 1 market.”
Craig also pointed out that Australian barley exports were performing well in these new markets.
“In 2021, Australian barley exports totaled 8.5 million tonnes with a similar volume expected in 2021-22,” Craig said. “Malting barley was exported into Canada, Ethiopia, Peru, Ecuador and Mexico.”
But since the tariff was implemented, world events such as COVID-19 and the war in Ukraine have stepped in to save Australian growers by driving world grain prices to record highs.
Voznesenski pointed out that prices were depressed in mid-2020 and later that year when the East Coast drought broke, but reductions in global supply and increased demand turned a bearish market into a bull.
“Demand for all grains strengthened substantially as governments stocked up to avoid being caught short by supply chain disruptions,” he said. “At the same time, we saw numerous production issues around the world. Consequently, prices, even for barley, started moving higher.
“At the end of May Australian barley prices were not only trading at substantially above-average levels, but some port zones were trading at record levels. Further, the malt premium over feed had risen back to above-average levels.”
With the tariffs only on Australian malting barley, the country was able to take advantage of China’s stock rebuilding program.
“China had a strong import program around the time of the tariff announcement, which drove world grain prices, so the grower didn’t really notice a difference in flat price terms the following year,” O’Shannassy said.
Craig pointed out that while the value of feed barley is traditionally lower compared to malt growers, historic high prices act as a buffer. As of late May, feed barley was selling for $400 per tonne back to the grower.
“The feed market is really strong at the moment and not impacting growers, but we would welcome the Chinese malt market back,” Craig added. “It would probably increase already historic prices if the market was open to Australia.”
Craig pointed out, however, that the market would determine the Chinese premium. He said the war in Ukraine was driving world grain prices and opening up markets for Australian grains.
“Today (May 26), new crop Australian Premium White (APW) in Western Australia hit a high of $500 per tonne back to the grower,” said Craig, who noted that canola planting is up 15% to 20% as a result. “GM canola is just over $1,000 per tonne and non-GM is $1,150 per tonne.”
Voznesenski estimates barley plantings are down 6.7% year-on-year (8.7% from the five-year average) while canola plantings equal 3.6 million hectares for the current 2022-23 season or an increase of nearly 21% year-on-year.
“The biggest declines are expected in export focused ports in Western Australia, down 13% from last year, and South Australia which we estimate is down 9% compared to 2021,” Voznesenski said.
He remains bullish on global prices, expecting global demand will continue to outstrip supply over the next 12 months.
“Given low global stocks and strong feed grain demand globally, we see the outlook for barley prices are favorable,” Voznesenski said. “While we don’t expect current high prices to stick around, we do expect feed barley prices to trade between A$415 per tonne and A$354 per tonne over the next 12 months.”
He added the extended run of very high global prices for grain should not be ruled out as a potential catalyst for China’s possible return to Australia as a buyer, which he expects will lift local prices further.
Craig also said that in the malt market, factors like barley varieties and where they were grown are more important than for the feed market, which is more interested in Australian feed barley’s low moisture content and good color.
Craig said Western Australian growers were hoping for as good a season like last year with plantings 70% to 80% complete with good early-season rains.
Rabobank recently released its production and price forecast for the Australian winter crop that confirms growers are confident with the market. The report estimates winter crop is up nearly 1% on last year with the biggest increase in planting found in Victoria (10% year-on-year) and Queensland (8% year-on-year).
The Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) published a report in June 2020 that stated there would be minimal impact in the short term on the industry.
ABARES said barley would remain profitable due to the low cost associated with growing the crop and for the agronomic benefit it provides growers. Rabobank’s crop outlook talks to farm inputs that it points out are higher and likely to remain so due to the high costs of production, freight and sanctions on Russia and Belarus.
Growers are managing high input costs by using less fertilizer up front with plans to increase it toward the end of the season if conditions remain favorable. They also are opting for more soil testing, alternatives to chemical fertilizers, and leaning toward conservative crop estimates.
ABARES also anticipate the barley tariffs will harm China, forcing buyers to shift to an alternative to malt barley and likely lead to lower returns for their products if they had not shifted away from Australian barley.
