CHINESE demand for Aussie wheat looks set to remain strong into 2016-17, as challenging Chinese harvest conditions in May and June spur demand for imported wheat.
While the outlook for wheat into China looks encouraging, China is still likely to be a mixed bag for Australian producers, as demand for feed grains, such as barley and sorghum, wanes.
Rabobank estimates that China will need to import around three million tonnes of wheat in 2016-17 – a similar figure to last year.
To put this number into perspective, it is important to recognise China’s place in the global wheat market.
China is the world’s largest wheat producer, and is anticipated to produce 114 million tonnes of wheat in 2016-17.
Australia, in contrast, is forecast to produce between 26 and 27 million tonnes of wheat this season.
Importantly, for Australian producers, Chinese production is forecast to be down 1.7 per cent year-on-year.
Not only is their production lower, the quality of wheat harvested is also expected to be of poorer quality, increasing import demand for high quality milling wheat.
Australia has historically supplied a large portion of China’s imported wheat, and will be in a good position to capture the anticipated import demand.
In 2015-16 (July-June), for example, China imported 3.4 million tonnes of wheat, of which Australia supplied 1.4 million tonnes, or 41 per cent.
While the outlook for Chinese imported wheat demand looks positive, the situation for feed grains appears less rosy.
Changes to Chinese government policy, aimed at clearing the country’s huge corn stockpiles, are meaning that Chinese feed mills are increasingly using Chinese domestic corn in their operations, at the expense of imported feed grains, including Australian barley and sorghum.
Two policy changes in particular have impacted demand for imported feed grains.
The Chinese government recently announced that it has cancelled its state procurement of corn from Chinese farmers.
Importantly, this is likely to lead to a significant reduction in the price of Chinese corn, reducing the incentive to import corn and other feed grains, including Australian feed barley and sorghum.
This followed the announcement by the Chinese government in 2015 that barley and sorghum were included into the catalogue of goods subject to automatic import license administration.
This increased scrutiny has the potential to further reduce imports.
A look at the numbers tells a story.
Australian exports of barley in in the six months to the end of June 2016 totalled 1.5 million tonnes, down from 3.2 million tonnes over the same period in 2015.
Sorghum exports fell from 393,000 tonnes to 258,997 tonnes over the same time period.
So while China looks set to demand plenty of Aussie wheat over the coming year, the market is likely to remain a mixed bag for Australian producers, as Chinese demand for Aussie feed grains wanes.
