Market Morsel: Chinese whispers point to curbs on feedgrain?

Market Morsel

China is an important market for Australian agricultural commodities, but it is also a country that is uncertain.

We have had numerous bans and tariffs on commodities over the years. Are we about to get another one?

It is important to note that these are merely rumours at the moment, but rumours can have a huge impact on markets before they are confirmed or denied.

So what is potentially happening?

The Chinese government have approached major domestic traders in China, and asked them to support local growers by focusing on domestic grain instead of foreign grain. This is largely for feed grains, such as corn, sorghum and barley.

They are concerned about the fact that they have an oversupplied domestic market at a time of reduced demand. They do not want their farmers to get poor pricing levels.

So how does this impact us?

We export large quantities of our barley and sorghum to China. If Chinese feed users are ‘encouraged’ to purchase domestic grain, then this will reduce the demand for Australian feed grains (and other nations).

Despite this only being a rumour at present, the reality is that it has already had an impact on pricing, with barley and sorghum pricing falling further in the past two days.

The other thing to note that regardless of whether they stop importing, this is a sign that the Chinese demand for grain may be lower than previously seen.

If we look at the charts below, imports of barley are still high for the first seven months of the year. The question will be whether that demand is still there by the time our harvest comes around.

The second chart below shows our pricing for feed grains over the past couple of days. Rumours can drive pricing, especially when China is involved.