Asia quietly bullish about grain demand
GroundCover™ Issue: 122 | 02 May 2016 | Author: Catherine Norwood
The Australian grains industry has continued its market extension with customers in Asia through conferences in Singapore, and in Beijing and Guangzhou, China, in February and March. Grain Trade Australia took the lead in organising three one-day conferences as part of the Australian Grains Industry Conference calendar of events. A Singapore conference in February – attended by Ground Cover writer Catherine Norwood – provided ongoing support to many existing customers of the Australian industry, with about 40 attendees.
However, two conferences in China also provided potential new customers with basic information about the Australian industry and how it works. There were more than 100 attendees in Beijing and 130 in Guangzhou. Singapore also hosted the annual two-day Global Grain Asia conference in March, an international event for grain traders, which the Australian Export Grains Innovation Centre attended. Its booth provided information to international traders and a point of contact for customers seeking niche grain products.
Global grain Asia
Markets waiting for a price kick
The commodity outlook provided at Global Grain Asia suggested flat markets and low prices for wheat were likely to continue through 2016 without some kind of political or climatic crisis to generate price movement.
Plenty of wheat in storage, and favourable weather forecasts in many grain-producing nations, with a La Niña event predicted in 2016, are expected to keep prices down.
Emily French, managing director of ConsiliAgra, said the global wheat supply cushion is nearing the record levels of 2000-01, with more than 122.5 days supply available to buyers at the start of March 2016, up from 110 days in March 2015. This followed record world wheat production in the 2014-15 season, with many countries such as China and India rebuilding their national stores.
Ms French said wheat prices from the Black Sea and former Soviet Union states were also now taking the lead in international trading, representing more than 25 per cent of global exports. She said rather than the Chicago Board of Trade, this region was now setting the tone for international wheat markets.
She reported that the long-term wheat consumption trend had been stagnant. The daily consumption rate increased only 21.3 per cent between 2000 and 2016, while daily corn consumption increased 60 per cent over the same period. The increase in wheat consumption in recent years has been the result of demand for feed grain, as diets shift from wheat to proteins. In the US the rise in corn consumption since 2002 has been driven by ethanol production.
Growth in other grain consumption has also been higher than for wheat. Between 2000 and 2016 sunflower consumption increased 73.6 per cent, canola increased 79 per cent and soy increased 83 per cent.
The longer-term trend in China suggests wheat consumption has plateaued, with consumption this year trending towards the 10-year average of 112 million tonnes per year. However, wheat consumption in India has grown from 70 million tonnes per year to 96 million tonnes over the past decade and remains a market with emerging growth potential for milling-quality wheat.
Traders at the conference said currency exchange rates would be one of their greatest business risks in the coming year, and a factor that would need to be considered more carefully in their purchases.
In a presentation from Rabobank, head of financial markets research in Asia–Pacific Michael Every felt interest rates would continue to fall around the world as banks attempted to stimulate economic growth. He predicted that more countries would join the European Central Bank and the central banks of Japan, Sweden and Switzerland, which have already introduced negative interest rates, and would start charging depositors to keep money in the bank.
He said there could also be increased volatility in foreign exchange rates as many countries are likely to further depreciate their currencies in an effort to stimulate exports, potentially resulting in “currency wars”. He expected this would be the case particularly if the US dollar and Chinese yuan continue to fall, with no one currency holding firm as the global benchmark.
Presenting on behalf of Indonesian flour millers, managing director of international miller Interflour Holdings Greg Harvey said the Indonesian rupiah had already fallen 10 to 15 per cent against the US dollar during 2015. At the same time, flour demand had fallen by 2.2 per cent.
A 30 per cent drop in wheat prices had helped balance costs, but 2015 had been the industry’s worst financial performance since deregulation in 1998 in Indonesia. Mr Harvey said the Malaysian ringgit had also depreciated 25 per cent during the year, but changes in that market had proven more manageable. The Vietnamese dong had suffered only a five per cent drop against the US dollar, with only a minimal impact on markets.
Despite a difficult global economic outlook for the year ahead, he said millers in South-East Asia remained “quietly bullish” about the future, based on anticipated population growth in the region and the general trend in increased wheat consumption.
Chair of the Association of Flour Producers in Indonesia Francis Welirang spoke at both the Australian Grains Industry
Conference and Global Grain Asia, providing an overview of the Indonesian industry, which has grown from five mills in 1998 to 31 mills in 2016.
He said that despite the drop in demand in Indonesia in 2015, Australia had increased its share of wheat imports to Indonesia, generally displacing US wheat. Australian imports increased from four million tonnes in 2014 to about 4.2 million tonnes in 2015, which represented 58 per cent of wheat imports.
The beginning of 2016 has already seen a small but promising recovery in flour demand by Indonesia.
Mr Welirang reiterated requests from Indonesian millers for Australian wheats better suited to sponge and dough-baking methods for bread, which is the fastest-growing flour-use sector in Indonesia.
He also reported on new regulations related to food safety testing for plant-based fresh food imports and exports. Under new regulations introduced in February 2016, countries exporting to Indonesia must have ‘approved’ status and approved food safety testing laboratories. Australia, the US, Canada, Ukraine and Argentina have been the first five countries approved under the new Indonesian regulations.
Australian Grains Industry Confernece
New markets need grain performance data
Strong interest from Chinese grain buyers was evident at conferences hosted by Grain Trade Australia (GTA) in March. GTA’s CEO Geoff Honey said the conferences, along with one in Singapore, had “stepped into a gap” in the market information available to new buyers of Australian grain.
In China in particular, government changes are allowing new participants into the market, and Mr Honey said they were keen to learn more about the qualities and functionality of Australian grain.
The conferences were supported by the Australian Department of Foreign Affairs and Trade, with the Australian High Commissioner opening the Singapore event and the Ambassador and Consul-General opening the Beijing and Guangzhou events respectively. Australian Trade Commission representatives also attended all three events. Co-hosts of the event with GTA were the Australian Oilseeds Federation and Pulse Australia.
A small contingent of 40 participants attended in Singapore, with more than 100 participants at the Beijing conference in March, including a group of growers on tour to investigate market opportunities in China. At the Guangzhou event most of the 130 participants represented Chinese buyers and grain users.
“There was strong interest in the crop-quality reports and also news about breeding programs for wheat and barley – malt barley in particular – and new varieties being released or in development,” Mr Honey said.
Consultant with Australian Crop Forecasters Ron Storey provided presentations at the three conferences and said there was a definite appetite for more information from Chinese buyers about Australian products and their commercial end uses.
Quality and reliability up
Providing an overview of the 2015 Australian crop, Mr Storey said growers had produced an average harvest of about 42 million tonnes, despite a strong El Niño event affecting many growing regions between April and November 2015. In previous El Niño years (2002 and 2006), national grain production had fallen to less than 20 million tonnes (Figure 1).
The advances in cropping technology, varieties and on-farm agronomics meant that even in difficult seasons, Australia was becoming a more reliable supplier in terms of yields.
Exports were holding steady at about 20 million tonnes, and 70 per cent of this was destined for Asia. Volumes of barley going to China have increased, particularly in 2015-16, squeezing out traditional Middle Eastern buyers, although Mr Storey expected demand from China for feed barley would fall this year as the country moved to draw down its corn stocks. This could also affect China’s recent domination of Australian sorghum exports.
He said major improvements to infrastructure during the past five years had increased bulk-handling export facilities from 17 to 22, which could cater for 41.4 million tonnes of grain a year. While capacity far outweighed production capability, it allowed for high volumes to be shipped during the crucial January to April period for Australian exports.
This increased capacity was expected to improve the competitiveness of Australian exports, as it brought to an end an auction system that forced traders to bid for shipping slots a year in advance, paying up to a $50/t premium to secure a loading berth.
This system had also led traders to aggressively buy grain in order to fill shipments, particularly in Western Australian and South Australia.
Mr Storey said there was also more capacity for customised container shipments, and this supply chain now exported more than three million tonnes of grain per year.
Regional crop reports were provided by Pat Wilson (GrainCorp, eastern region), Jonathan Wilson (Glencore, southern region) and Rachid Elkhayam (CBH Group western region).
They said overall quality was good, and better than anticipated, although most regions were affected by higher screenings as a result of the season.
They reported that the larger percentage of the crop making Australian Hard and Australian Standard White grades was a result of higher levels of screenings. Volumes of AH1 delivered in WA were at an all-time low.
In the south and west the percentage of malting-grade barley was also down and comprised 10 to 15 per cent of the crop, compared with up to 30 per cent in previous years. They also reported that growers were increasingly quick to take up new varieties. New varieties comprised a larger percentage of the crop this year, particularly Mace for wheat in the south and west, and Scope for southern barley growers.
At the Singapore conference ANZ’s report ‘The Grain Muster’ was released in the March 2016 issue of its Infocus publication, focusing on the outlook and investment opportunities for the Australian grains industry.
It provides an overview of Australia’s position in relation to Asian market predictions, with much of the potential growth focused on feed for beef and dairy livestock. Presenting on the report, ANZ economist Weiwen Ng said he believed there were also opportunities for Australian growers to co-invest along the supply chain to take advantage of growth in Asian markets.
A ‘moderate-growth’ scenario is based on increasing the national wheat crop from a ‘status quo’ of 25 million tonnes to 27.5 million tonnes by 2030, and an ‘aggressive-growth’ scenario increases the national crop to 30 million tonnes by 2030.
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