March 23, 2012


Australian grains price to ride on back of China's pigs



According to Rabobank food & agribusiness research senior analyst Dean Smith, the future of Australian grain prices is depending on Chinese pigs.


Smith was one of the key speakers at the Hart Field Site Group's Getting the Crop In seminar held at Clare last Wednesday (Mar 21).


He said growth in China has been phenomenal and this trend was set to continue.


"The China story, in the long-term, is a pretty positive story," he said. "The EU is the biggest economy in the world at US$17 trillion, followed by the US at US$15 trillion and China at US$7 trillion. China has been doing a huge catch-up in the past 10 years, and we think China will be at 70% of the size of the US gross domestic product by 2015. At US$11 trillion, that's quite a lot of growth in a very short time."


China is becoming a very important market, particularly for grains.

"Over the next 10 years, we need to look at China, because that's where the growth is coming from," he said. "In 2001 its economy was only 11pc of US GDP."


This growth was driving increasing demand for the 4 Fs food, fibre, fuel and feed.


"The real opportunity in the next 5-10 years is in animal feed," he said.


Animal protein consumption was rising rapidly, particularly for the Chinese people's preferred meat pork.


"By 2015 it's estimated 144 million tonnes of animal protein will be consumed in China," he said. "That's 24 tonnes more than 2010 and 67 tonnes more than 1996."


With 3.4 kilogrammes of dry grain matter required to produce a kilogramme of pork, the need for feed grains was set to rise rapidly. Poultry only required 1.8 kg of dry matter/kg of meat, while beef required 8 kg and fish 1.2 kg.


So, China will require 270 tonnes of grains annually for its livestock production, with 170 tonnes just for pork production alone. For poultry 54 tonnes will be required and beef 12 tonnes.


"China produces 117 tonnes of wheat, 191 tonnes of corn and 13.5 tonnes of soy beans," he said.


So, with 321 tonnes produced annually, and 270 tonnes used for animal protein, only 51 tonnes was left over for direct human consumption.


This shortfall means China will need to import a significant amount of grain.


So, while the outlook for feed grain demand from China was positive, the demand for malt barley was not set to increase significantly.


"With beer consumption, in Australia 103 litres is consumed per capita, in China it's only 30L," he said. "While beer consumption is increasing in China, we haven't seen an increase in demand for malt barley. Despite beer production increasing by 8pc in 2011, malt demand only rose 0.8pc. That's because the Chinese don't just use malt in their beer production, they also use corn, sugar or rice. The barley variety Hindmarsh is going into production in China as a fair/average malt quality, even though it's not even malt grade in Australia."


With 90% plus of the Chinese beer market price driven, rather than quality driven, a spike in demand for malt barley was unlikely to happen anytime soon.