Australian Wheat: Next Chinese Boom

Posted in Wealth
16/08/2013 Level One

This is an article that was published in the Australian Financial Review on 14 August 2013, written by Angus Grigg and Lisa Murray.

China, long a minor buyer of Australian agricultural commodities, may be about to emerge as the biggest customer of Australian wheat farmers.

Domestic producers have already forward sold more than 2 million tonnes of wheat to China before the shipping season begins in October, according to Brett Cooper, the senior markets manager at commodities trader FCStone.

“It’s very possible we could sell them more than 4 million tonnes next ­season,” he said.

With sales of other farm products to China booming as well, China could surpass Indonesia as the biggest buyer of Australian wheat within a year, ­analysts believe, a change which would add an important new dimension to a trade relationship that is now dominated by coal and iron ore.

A severe drought in China’s south, floods in the north and rising demand from the middle class have triggered a sharp jump in demand for wheat to make bread, pastry and other foods.

On Monday night the United States Department of Agriculture upgraded its ­forecast of Chinese wheat imports to 9.5 million tonnes in 2013-14, almost ­triple the previous financial year.

On average China has imported 1 million tonnes of Australian wheat annually over the last five years.

“As soon as they [the Chinese] step into the market they can really push things around,” said a senior commodities analyst at Australian Crop Fore­casters, Nicholas Brooks.

Other farm products are in demand too. Chinese buyers drove Australian sorghum prices to a record high this year as traders scrambled to secure supplies to make the popular white spirit known as baijiu. In April the ­canola price spiked more than 20 per cent after China lifted an import ban on Australian oilseeds.

Sheep exports up

Sheep meat imports from Australia were also up 135 per cent in the first half from a year ago, while beef and veal imports have surged 20-fold over the same period, partly due to a crackdown on smuggling.

At the start of the year, the beef industry predicted total exports for the year of 35,000 tonnes. Those expectations have now more than tripled.

The chief executive of ANZ Banking Group, Mike Smith, recently said that people “just don’t get” the rapidly evolving soft commodities story in China.

“Demand for protein is just growing exponentially in this part of the world,” he said on a visit to the western Chinese city of Chengdu.

“Countries like Australia and New Zealand are at an extraordinary advantage because the logistics costs are so much less than anywhere else,” he said.

The USDA will release a more comprehensive “Wheat Outlook” this week. It said last month that Chinese government reserves of milling quality wheat, which are used to keep the market ­stable, have fallen and it expects imports to surge as China rebuilds those reserves. “Every uptick in expectations for China’s imports is going to lead to some interest in the Australian market,” said Graydon Chong, a senior analyst at Rabobank.

Strong outlook for wheat

Rabobank forecasts Australia’s wheat crop will reach 24.2 million tonnes this season, up 2 million from a year earlier. Over the last two years China’s annual wheat consumption is estimated to have increased by 18 million tonnes to 125.2 million tonnes.

The chief analyst at Profarmer ­Australia, Nathan Cattle, said Chinese demand would be especially important for Australian farmers next season.

“Australian wheat is struggling to compete on price into the Middle East and North African markets as supply is increasing from the Black Sea area,” he said. “So the Chinese buying is a very significant development.”


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