August 31, 2012

 

 

China's demand for grain could benefit Australia as it struggles with declining metal and coal prices, allowing wheat to be the country's top 10 exports to its largest trading partner.

 

A growing taste for meat among China's rapidly-expanding middle class has turned the Asian giant into one of the world's largest grain importers as it struggles to meet growing demand from its booming livestock industries.

 

"We expect wheat to get to the top 10 commodities going to China in [the current crop year of] 2011-12," said Allan Winney, chief executive of Australia's fifth-largest grain exporter Emerald Group. "There hasn't been a large volume going there before now," he said.

 

Higher earnings from agricultural exports from Australia's largest trading partner could be a boon at a time when a slump in prices of the country's main exports, particularly iron ore and coal, are fuelling concerns of a tail-off in export earnings.

 

Macquarie Securities warned in a note last week that Canberra could face a budget deficit of about US$9.3 billion this fiscal year--compared to its stated aim of a small surplus--as falling commodity prices and lower company profits wipe about AUD10 billion (US$11 billion) from expected tax receipts.

 

Mr. Winney predicted that Australia's wheat exports to China will near three million tonnes in the 2011-2012 international crop year, which runs October to September. Farmers have already shipped around 2.4 million tons this season, more than a fourfold increase from 2010-2011. Australia reaped a record harvest of 29.5 million tonnes of wheat in its crop year ending March 2012 due to plentiful rainfall.

 

That would earn Australia an estimated AUD800 million (US$824 million) from shipments to China this season, Mr. Winney said, making wheat the number nine export to Australia's largest trading partner by value, government data showed.

 

China imported more than US$1.5 billion in agricultural commodities from Australia between January and July, according to official Chinese data. Earnings from wheat more than doubled compared to a year earlier, while the value of sugar imports increased more than fivefold over the same period.

 

That figure is dwarfed by earnings from Australia's hard commodities. Its largest exports, iron ore and coal accounted for 58.2% of total resource exports in 2011 while the value of mineral exports climbed by almost a quarter during the year.

 

Still, the rise in prices--and Chinese demand--for food products presents a fresh opportunity for Australian farmers who have battled drought, floods and all manner of natural disasters over the past decade. With local wheat prices up 25% since May, spurred by fears about the Northern Hemisphere harvest, Mr. Winney said farmers may export as much again in the 2012-2013 crop year as China seeks alternatives to make up for low supplies of US corn.

 

"This is a very good opportunity for Australian farmers," Mr. Winney said.

 

That said, some fear that Australia's wheat output could fall by as much as 20% in the coming crop year because of dry weather in the top growing state, Western Australia, meaning farmers may have to export last year's stocks to take advantage of high prices.

 

After a recent crop tour, Emerald lowered its estimate for Western Australia's 2012 wheat output to seven million tonnes, down from eight million tonnes, and may cut it again to as low as six million tonnes if there is no rain in the next month or so, Mr. Winney said.