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Insights April 2020

6 April 2020 |Cropping
Crop image

Insights April 2020

6 April 2020 |Cropping
The Coronavirus pandemic (COVID-19) is profoundly changing the domestic and international landscape. This edition of the Rural Bank Insights Update aims to provide a summary of Coronavirus’ impact on Australian agriculture as it stands today.

The report specifically addresses your questions around input supplies, underlying demand for food and fibre, and the impact on the supply chain across the commodity segments.

Overview

  • Increased demand for staple food products including bread and pasta, have supported domestic demand for
    Australian wheat.
  • Export demand has been relatively immune to the impacts of coronavirus, owing largely to the small exportable
    surplus after a difficult growing season for most.
  • The smaller wheat crop year-on-year combined with strong wheat exports to date, mean the Australian wheat
    balance sheet has very limited surplus, this combined with the weakening Australian dollar is providing insulation to
    domestic wheat values against coronavirus impacts.
  • Impact on Australian canola has been minimal. Exportable surplus is estimated to be around 1.3 million tonnes, and
    with over one million tonnes exported to the end of March, majority of canola has already been sold and prices have
    remained relatively stable.

Key Markets

China

  • In 2019, China accounted for 12 per cent of Australian crop exports overall. The most significant category was
    barley at 57 per cent, followed by canola at 13 per cent, and wheat at 3 per cent.
  • Australia’s barley trade with China has been impacted by the ongoing anti-dumping allegations.
  • Both wheat and barley trade with China have seen a significant spike in the first quarter of 2020.
  • China has purchased large volumes of both wheat and barley as China’s local economy recovers from
    Coronavirus. This demand has been further supported by the weakening Australian dollar.
  • In the month of March, grain shipments to China accounted for 30% of total bulk grain shipments (1/3rd of both
    bulk wheat and barley shipments for the month).

South Korea and Japan

  • South Korea and Japan accounted for 11 per cent and 10 per cent respectively of Australia’s wheat exports in
    2019
  • Both destinations primarily source specialty noodle wheat from Australia. This wheat is not easily substituted
    with alternative origins; hence demand is considered inelastic.
  • Given Australia’s reduced production in the 2019/20 season, the fact exports are booked months in advance,
    and that wheat exports to date have already surpassed half of available exportable surplus, any impact will be
    limited.
  • Ports in both South Korea and Japan are reported to be operating at normal efficiency and sea imports are
    running smoothly.

Phillippines

  • The Philippines was home to 18 per cent of Australia’s wheat in 2019, and for the year to date 2020 has been Australia’s biggest destination for wheat.
  • The Philippines government have declared the movement of cargoes to and from the Philippines shall remain
    unhampered, although delays may be expected as strict quarantine measures are being implemented.
  • Whilst ports are operating as normal, staff availability and increased quarantine measures are causing some
    delays.
  • Any supply chain issues caused by Coronavirus has potential to slow wheat exports, however given reduced
    production and high export demand, Australian wheat will find alternative destinations if required.
  • Philippines demand is largely for Australian Standard White wheat, and bulk grain storage company stock on hand reports suggesting supplies are almost exhausted indicate demand from Philippines would decline in
    coming weeks due to lack of suitable supply.

Indonesia

  • Since 2017 Indonesia’s share of Australian wheat exports has fallen from 22 per cent to nine percent in 2019.
  • Below average winter crop production, and high domestic pricing has seen Indonesia source increasing share of
    its wheat requirements from cheaper origins, including the Black sea.
  • Given the available supply of wheat from Australia, any impact of Coronavirus on Indonesia’s demand for wheat
    is likely to have limited impact on Australian wheat values.

 

                   

Sources: Australian Crop Forecasters and Profarmer Australia
*Bulk wheat exports declined month-on-month in February, but recovered in March
*Wheat prices have lifted $40-50 in March, supported by domestic demand and dwindling supplies.

 

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