Coarse grains: March quarter 2019
Benjamin Agbenyegah and Nathan Pitts
Demand for feed and industrial use to increase prices
The world indicator price for barley (France feed barley, fob Rouen) is forecast to average higher in 2019–20 and continue to increase over the medium term to 2023–24. This is because growth in world supply is expected to be lower than growth in demand for feed and industrial use. The world corn indicator price (US no. 2 yellow corn, fob Gulf) is also forecast to rise over the medium term, underpinned by strong demand growth in China.
Feed and industrial use to drive corn consumption
World coarse grain consumption is forecast to increase to a record high in 2019–20 and to continue to increase over the medium term. Growing populations and rising per capita incomes in emerging and developing economies are driving an increase in global meat consumption. Ongoing strong demand from livestock industries will increase the use of coarse grains for feed. Demand for coarse grains is also being bolstered by biofuel policies that continue to encourage substitution of ethanol for fossil fuels.
f ABARES forecast. z ABARES projection.
The demand for ethanol in China is expected to rise following the September 2017 announcement of a nationwide ethanol blending mandate. This is estimated to require 40 million tonnes of corn per year, drawn from Chinese reserves. Over the medium term, the effect of this policy on world prices will be marginal because China is not a major importer of corn. It is unclear if the blending mandate will change as China's corn stocks fall. If Chinese corn stocks are depleted, the policy would oblige China to import significant volumes of corn or ethanol, and put upward pressure on global corn prices.
In 2018–19, global barley consumption is expected to fall due to lower production from major exporters and higher global prices. Barley consumption is forecast to recover in 2019–20 to 147 million tonnes, as availability improves with an assumed return to average seasonal conditions in major exporters. Consumption growth over the medium term will be driven by increasing demand for beer in Asia.
Production to partially meet growing demand
World production of coarse grains is forecast to remain largely unchanged in 2019–20. Falling Chinese corn production will be offset by increases in barley production in Australia, the European Union and the Russian Federation. In the short term, Chinese farmers are expected to shift towards producing soybeans rather than corn in response to higher Chinese import tariffs on US soybeans. Barley yields in Australia, the European Union and the Russian Federation are expected to recover as seasonal conditions improve after a poor 2018–19 season.
Over the medium term, world coarse grain production is projected to increase by under 2% per year to around 1.5 billion tonnes by 2023‒24. This is well below the 4% annual growth rate in the 10 years to 2016–17. Higher barley production is expected in Australia, Canada, the Russian Federation and Ukraine in response to projected higher prices.
World corn production is projected to increase over the medium term because of an expansion in area planted, particularly in Argentina, Brazil, China and the United States. This area expansion is subject to some uncertainty and will be affected by the relative profitability of cropping alternatives—particularly soybeans. Global yields are expected to increase only slightly, with minimal increases in Argentina, Brazil and China. In the United States, yields are projected to follow trend growth.
f ABARES forecast.
The drought affecting eastern Australia has reduced coarse grain production substantially and increased livestock feed use. In 2018–19 Australian production is forecast to fall by 9% and exports of coarse grains by 5%. Barley production is estimated to have fallen by 7% to 8.3 million tonnes. Low soil moisture levels in New South Wales and Queensland resulting from an unfavourable growing season reduced grain sorghum production to 1.3 million tonnes.
In 2019–20 Australian coarse grain production is forecast to rise by 15% to around 13 million tonnes, driven by an expansion in grain sorghum planting. Assuming improved seasonal conditions, barley production is forecast to increase by 6% to 8.8 million tonnes and grain sorghum by 50% to 2.0 million tonnes.
Over the medium term, Australian coarse grain production is projected to increase by 1.7% per year to reach 13.4 million tonnes by 2023–24. Barley production is projected to reach 9.4 million tonnes and grain sorghum 2 million tonnes by 2023–24. Exports of barley and grain sorghum are expected to increase, in line with production.
Challenges and opportunities
Climate variability and yields
Projected production growth over the outlook period assumes average seasonal conditions will prevail in the world's major coarse grain-producing countries. Most of the world's coarse grains are rain fed and production varies with seasonal conditions. Increased climate variability adds additional uncertainty to the production outlook.
Australian GM policies and export competitiveness
The Office of the Gene Technology Regulator has not issued any licences to grow GM coarse grain varieties in Australia, and some states and territories ban cultivation of all GM crops. As a result, Australia is less competitive with nations that have adopted the more productive GM varieties. A 2018 study found that GM biotechnology was responsible for additional global production of 405 million tonnes of corn in the 21 years to 2017. This was largely from yield improvements in Argentina, Brazil and the United States.
A 2017 Productivity Commission inquiry into the regulation of agriculture recommended that state and territory governments end these moratoriums. This recommendation was supported by the Australian Government in January 2019. Consistent Australia-wide policies on GM crops and permission to cultivate GM coarse grains would increase domestic productivity. This would improve Australia's competitiveness in price-sensitive export markets.
US–China trade dispute and coarse grain markets
Ongoing trade tensions between China and the United States present a significant downside risk to per capita incomes and consumer confidence in China (see the Economic overview). This could lead to a dampening of Chinese demand for meat, which is otherwise projected to increase over the medium term. Chinese consumption accounts for around 30% of global meat consumption. Any softening in demand could affect global demand for coarse grains for feed use.
Chinese anti-dumping investigation into Australian barley
An adverse finding in the Chinese Ministry of Commerce anti-dumping or countervailing duty investigations could result in duties being imposed on imports of Australian barley. This would reduce the competitiveness of Australia's barley in the Chinese market over the medium term.
|Coarse grains outlook – March 2019 PDF||4||479 KB|
|Forecast data – March 2019 XLS||12||65 KB|
|Historical data – March 2019 XLS||45||1.4 MB|
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