Grains, trade & gains
MICHAEL WHITEHEAD, HEAD OF AGRI INSIGHTS & VIVEKA MANIKONDA, SENIOR ASSOCIATE, INSTITUTIONAL, ANZ | JULY 2019
The growth in global grain and oilseed usage continues to grow unabated. The upward change in the rate of growth since 2000 in comparison to the previous 50 years has been phenomenal.
Since 2000, global grain and oilseed production and consumption increased by 36 per cent and 38 per cent respectively, a rate which is nearly twice global population growth, according to data form the United States Agricultural Department (USDA ). Trade volumes over the same timeframe have doubled, driven not just by demand but by the growth in trader agreements and market access.
In terms of overall value, the gross value of production of Australia’s grains and oilseeds is forecast to reach around $A15 billion in 2019/20. Around half of this will be made up by wheat, followed by barley (20 per cent), canola (15 per cent) and sorghum (4 per cent), Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) figures show.
“Trade volumes [since 2000] have doubled, driven not just by demand but by the growth in trader agreements and market access.”
According to ABARES, global oilseed production is expected to grow around 2 per cent annually to 638 million tonnes by 2023–24. Wheat production should increase 7 per cent to 787 million tonnes in that time. Coarse grain production is projected to lift by less than 2 per year to 1.5 billion tonnes by 2023‒24, below the 4 perc cent annual growth rate seen in the 10 years to 2017.
Globally, corn (1,131 million tonnes), wheat (755 million tonnes) and rice (493 million tonnes) continue to remain the most consumed grains, according to USDA stats. Interestingly, the global consumption level of soybeans (453 million tonnes) has now risen to the almost the same level as the traditional staple crop of rice.
Over the same period, consumption rates for corn and soybeans have grown around three times those of wheat and rice, reflecting rises in not just animal protein demand, where grains and oilseeds are used for animal feed, but factors such as biofuel policy mandates.
China’s role in grain imports going forward cannot be underestimated. China has continued to grow as a dominant importer of grains and oilseeds, with a three-fold expansion in imports over the past fifteen years. While in 2004/05 China’s grain and oilseed imports were roughly equivalent to those of Japan, today they are around four times the size.
If anything, China’s significance to the global grain and oilseed sector, particularly Australia’s, will only continue to grow.
In signalling its intentions over recent years to rely less on imported dairy and meat products, China has shown its need for feed to build domestic production is likely to grow strongly. At the same time, rising Chinese consumer demand for more and better food varieties shows little sign of slowing.
The ongoing trade tension between China and the US has strengthened the need for China to diversify its grain and oilseed suppliers, potentially reducing its reliance on America.
While Brazil is likely to be the major beneficiary of increased oilseed demand, Australian oilseeds and grains are likely to see increased attention from Chinese buyers.
One factor which may temper this is the impact of the African Swine Fever outbreak in China on grain supply chains.
With some forecasters predicting between 30 and 70 percent of China’s pigs may need to be slaughtered, the impact on feed demand may take some time to play out. That said, a resultant increased demand for red meat imports from Australia could boost domestic feed demand even further.
While every year the Australian grains and oilseeds sector takes stock of the challenges and opportunities which it faces, the current period, on the precipice of the 2020s, brings some unique ones.
In particular the current tension over a number of major global trade relationships, most notably the US and China, may well impact trade flows of major of major agricultural commodities, particularly grains. The flow-on effect could touch on many issues including pricing, demand specifications, and investment flows.
Domestically, overall acreage and production levels continue to be volatile, in the wake of the past few years’ record high production, followed by drought decimated crops. The impact of this volatility on the national sector goes well beyond individual farmgate production levels.
For international markets, the need to ensure continuity of supply means trade relationships with other partners are increasingly likely, particularly from South America and the Black Sea region. These producers may take a greater share of Australia’s traditional markets in the longer term.
Over the past sixty years, Australia’s share of global wheat production has remained relatively consistent, despite the strong growth in production. In volume terms, Australian wheat production since 1960 has almost tripled, growing 180 percent from around seven million tonnes to 21 million, according to the USDA. Global growth has been slightly stronger, rising from 233 million tonnes to 772 million tonnes over the same period, a rise of 230 per cent.
In terms of exports, the change in Australia’s share of world trade is more noticeable. For much of the past 60 years, Australia has continued to occupy a position as one of the world’s major wheat exporters. While there has been reasonable volatility, Australia’s share of global exports has traditionally sat between ten and fifteen percent.
Since 2000, this share has trended down noticeably. This has been driven by a number of factors, both global and domestic. Globally, the growth of new competitors, particularly Russia and the Ukraine, has undoubtedly eaten into Australia’s market share.
From a domestic angle, however, this change can be seen as a strong foundation for the industry’s future. The percentage of Australia’s wheat production allocated for domestic feed needs has almost tripled in the last twenty years, and continues to outpace the growth in non-feed usage (primarily food and industrial).
Much of this growth in feed demand has been driven by the structural changes in the meat industry. The number of head of cattle on feedlots continues to hit record levels, driven partly by the demand from consumers, particularly in Japan and South Korea for grain-fed beef, but also by the increasing role of feedlots on the overall production system, as a means of fattening prior to slaughter.
The importance of feedlots, and subsequently feed, has been emphasised during the recent period of drought, as this provided an option for cattle producers with little grass to be better able to finish off their stock.
While Australia’s overall grain and oilseeds production has lifted markedly over the past sixty years, the change of the overall mix of grains and oilseeds provides a strong picture of the sector’s future direction.
Sixty years ago wheat retained its historical role as Australia’s major crop. Over the decades, this percentage has continued to fall, from around 80 per cent of the overall crop to around 55 per cent.
Of the other major crops, the largest growth has been in barley production. Fifty years ago barley production was 10 per cent of wheat production, while last year it had reached half the level of Australia’s wheat production.
While the overall share of canola is less, its growth continues to be strong. From almost nothing 30 years ago, domestic canola production rose last year to almost twenty percent of that of wheat.
The scale of the challenge to Australia from major export competitors is further emphasised in a comparison of yield growth over the past few decades.
On its own, yield growth could be regarded as not an exact science, as climatic and growing conditions vary markedly by country and by region. In addition, many developing countries which have more recently accessed agricultural technology and new investment are more likely to be coming off a low base.
Since 2000/01, the average global wheat yield is estimated to have increased by around 30 per cent, from 2.7 t/ha to a forecast 3.5 t/ha in 2019/20. In comparison wheat yields in Australia grew around 5 per cent over the same period, from 1.8 to 1.9 t/ha, USDA data suggests.
At the other end of the scale, yield growth in some of Australia’s export competitors in the last twenty years has been spectacular. In Russia, Ukraine and Kazakhstan, yields have risen by 74 per cent, 109 per cent and 37 per cent respectively. Even Argentina has seen yields grow by 30 per cent over the same period.
Both the Black Sea region and Argentina arguably benefit from mostly highly productive soils, as well as less challenging climatic conditions than Australia. But a large degree of their recent yield growth can be attributed to enhanced farm-management practices, boosted by new investment, as well as governments keen to stimulate their grain industries to maximise opportunities from demand.
For producers in South America and the Black Sea region, a lack of major domestic markets, either in scale or demand, further indicates the likelihood of growing export volumes on world markets.
In terms of global grains and oilseeds trade flows the major South American and Black Sea producers have lifted their market share from 33 per cent to 53 per cent over the past fifteen years.
Michael Whitehead is Head of Agri Insights and Viveka Manikonda is a Senior Associate, Institutional at ANZ
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