Market Morsel: Russia to steal our grain trade with China?

Market Morsel

There is a lot of geopolitical turmoil, war in the black sea region, and conflict in the Middle East. In the past couple of months, relationships have been strengthened between China, Russia and North Korea as these nations look to support one another. It seems like they are getting the old band back together.

This week, a Russian grain export company has pencilled a deal to deliver 70mmt of grains, oilseeds and pulses to China. A considerable volume.

This deal is part of the new Land Grain Corridor Initiative and looks to take advantage of the ability to transport commodities overland from Russia to China.

So what does the deal mean?

Firstly, I think the most important point is that this is clearly a sign of growing trade relationships between these nations and possibly a move away from the West.

It may have consequences at a grower level in Australia, as it may reduce the demand for Australian grains.

We have only just got our barley trade back, and we will likely be supplying large licks of barley there over the next twelve months. Wheat was never gone, and we exported huge volumes in recent years. Will Russia displace us?

The deal, whilst little details have emerged, seems to be for 70mmt over 12 years; this amounts to an average of 5.8mmt.

The chart below shows the cumulative imports of wheat, barley and corn. In recent years, the volume going to China has increased massively. If the volumes continue to remain at these elevated levels, then 5.8mmt is not a significant volume; it’s a little over one month’s volume for the past three years.

We need to be concerned about any possibility of Russia cutting our lunch, but this deal still leaves room for us, and we still have many other hungry nations on our doorstep which can consume our grain.