Coarse grains: March quarter 2021

Peter Lock

World corn prices to fall as a result of rising demand for animal feed

World barley prices to fall because of the re-organisation of supply chains towards China.

Tight coarse grain supplies to support prices

The world indicator price for corn is expected to decrease by 5% to US$190 per tonne in 2021–22. World corn production is expected to increase in 2021–22, but consumption is expected to remain flat. World consumption of corn has been largely unchanged throughout the COVID-19 pandemic with decreasing industrial use offset by increasing demand for animal feed. Over the medium term to 2025–26, above average corn prices are expected to be driven by increasing demand for corn as animal feed and as an input to biofuel, combined with ongoing competition from soybeans for arable land.

The world indicator price for barley is expected to decrease by 2% to US$226 per tonne in 2021–22. World barley consumption is expected to fall at a faster rate compared with global production in 2021–22. Above average world barley prices are being supported by export controls imposed by the Russian Federation and Argentina, as well as by demand from China for barley sourced from countries other than Australia. Prohibitive import tariffs imposed by China on Australian barley in 2020 have reduced the pool of barley that is available to Chinese consumers from global markets. Over the medium term, ongoing strong demand by China is expected to continue to support global prices. The world indicator price is expected to remain elevated but fall from current levels to US$211 per tonne in 2025–26, as global supply chains adjust to China's shift in demand away from Australia towards the Black Sea Region, Europe and South America.

World coarse grain supply and prices, 2008–09 to 2025–26z
World coarse corn and barley production are expected to increase over the outlook period to 2025–26. Growth in the consumption of corn and barley is expected to continue to outpace production growth supporting higher prices over the outlook period.
f ABARES forecast s ABARES estimate z ABARES projection.
Sources: ABARES; IGC; USDA

Australian coarse grain prices

Falling barley production to support domestic prices

Australian barley prices are expected to rise in 2021–22, increasing by 3% to $243 (US$182) per tonne because of falling domestic production and stable demand for exports. In the absence of any further external shocks and with relatively stable seasonal conditions, Australian barley prices are projected to increase by a further 4% to $252 (US$186) per tonne over the outlook period to 2025–26. Australian prices are also projected to remain below prices received by major competitors because of restricted access to the Chinese animal feed and malt markets.

Increasing grain sorghum production to lead to lower prices

Australian grain sorghum prices are expected to fall by 6% to $300 (US$225) per tonne in 2021–22 because of the return to average seasonal production from drought-induced lows, and a fall in demand for animal feed due to increased pasture and fodder availability. Over the outlook period, domestic prices are projected to continue to fall to $253 (US$187) per tonne in 2025–26 as a result of increased competition with other feed grains in the domestic market and limited opportunities to expand exports.

Increasing competition between corn and soybeans to limit production growth

Global production of coarse grains is expected to fall by 1% to 1.4 billion tonnes in 2021–22.

US and Chinese corn production are at or near record levels. However, increasing competition from alternative crops, particularly soybeans, is expected to constrain area planted in 2021–22. Over the medium term, world corn production is expected to increase from 1.1 to 1.2 billion tonnes as a result of an increase in area planted. Growth in area planted to corn in China is expected to be constrained as a result of acreage subsidies for soybeans. Similarly US corn acreage is also expected to face strong competition from soybeans as a result of increasing demand for animal feed from China. The production outlook for corn is also predicated on a continuation of the current farm support measures in China and the United States. Any change in these measures would be expected to change the incentives influencing the split between corn and soybean production over the outlook period. A dry start to the 2020–21 summer in Argentina and Brazil is also expected to have affected early corn plantings and yield prospects.

World barley production is expected to fall by 4% to 151 million tonnes in 2021–22, after reaching record levels in 2020–21. World barley production is expected to decline because of expectations of lower production in Australia and in the United Kingdom and European Union. From 2022–23 to 2025–26, world barley production is projected to increase by 5% from 151 to 159 million tonnes, in response to increasing demand from China and other developing countries for use as animal feed and for human consumption. Production increases are expected to occur in the Black Sea Region and South America rather than in Australia, the European Union or the United States, due to a lack of suitable area and ongoing competition from other crops.

Demand to reach consecutive records

Global consumption of coarse grains is expected to remain stable at 1.5 billion tonnes in 2021–22, supported by ongoing demand from China. Over the outlook period, demand for coarse grains is projected to increase and consumption is projected to reach consecutive records. This is underpinned by rising demand for animal feed in China and increasing industrial use, particularly of corn.

Demand for corn by China – the largest consumer and importer – is expected to continue to outstrip domestic production. Demand is expected to be driven by the recovery of China's pig herd to pre–African swine fever outbreak levels and the continued growth of other intensive animal industries, including chicken and dairy. However, limited increases in the supply of corn have necessitated the ongoing sale of national animal feed stockpiles by the Chinese government. Chinese imports of grain for animal feed have also hit record levels in response to rising meat production and domestic feed prices.

US corn consumption is expected to remain stable despite the ongoing impacts of COVID-19 on demand for more income-responsive food products, such as meat, and the decline in consumption of biofuels because of reduced travel. Over the outlook period, demand for corn in the United States is expected to increase as economic activity returns to pre–COVID-19 levels. The demand for corn used in biofuel production is also expected to be supported by a renewed policy focus on environmental sustainability.

Continued strong global demand and limited opportunities to increase planted area in major producing countries is expected to result in a continued reduction in coarse grain stocks to 277 million tonnes by 2025–26, down 12% from 2020–21.

Medium term scenarios for forecasts

Medium-term forecasts from 2022–23 to 2025–26 for Australian coarse grains are based on the average outcomes of 4 possible seasonal climate scenarios. A very dry season in the wheat-sheep zone is likely to occur in one of the 4 years. Each scenario places this dry season in a different year, with other years assumed to receive rainfall of around deciles 3 to 4. For a more detailed explanation see the Agricultural overview.

The range of outcomes forecast to result from each scenario are then averaged. Unless otherwise indicated, these average forecasts – or their ranges – are discussed in this note.

Upside and downside scenarios are also considered. The upside scenario combines a faster economic recovery from the COVID-19 pandemic with another high rainfall year in 2021–22. A very dry year is still assumed in 2022–23. Because it follows an assumed wetter year, negative effects on production are reduced. The downside scenario combines a slower than expected economic recovery with very dry years in 2021–22 and 2025–26.

 

Australian production and demand are subject to uncertainty

The outlook for Australian and global coarse grain markets is subject to a considerable degree of uncertainty resulting from seasonal and macroeconomic conditions.

Seasonal climate uncertainty is expected to be the greatest risk to coarse grain production in Australia and around the globe. ABARES considered 2 alternative production and consumption paths for barley and grain sorghum in Australia. A return to drought conditions in eastern Australia with continued dry conditions in Western Australia would reduce planted area and yield prospects. Conversely, better than expected seasonal rainfall would support above average yields and plantings greater than the presented forecasts.

The ongoing economic recovery from the COVID-19 pandemic is likely to be uneven, with developed nations – including Australia – expected to vaccinate most of their populations in the 2021 calendar year. Evolving macroeconomic conditions are not expected to significantly affect the trajectory of production or demand for coarse grains, outside of the impacts on biofuel markets. Industrial biofuel production remains an important use of corn. A stronger or weaker than assumed economic recovery will affect demand for biofuels. However, the impact of macroeconomic uncertainty on biofuel markets is expected to be minor because the main consumers are developed nations in the western hemisphere, which are likely to vaccinate the majority of their populations in 2021.

Structural adjustment to affect Australian production over the outlook period

Australian production of barley is expected to fall by 19% in 2021–22 to 9.7 million tonnes. Although barley production is expected to remain above the 10-year average to 2020–21 (9.3 million tonnes), import tariffs imposed by China on Australian barley are expected to result in a reduction in area planted in trade-exposed regions, particularly Western Australia. Assuming these tariffs remain in place over the outlook period, area planted to barley is expected to fall below 4.0 million hectares by 2025–26—the lowest since 2013–14—with production ranging between 7.4 and 9.3 million tonnes, subject to seasonal rainfall. Despite this projected structural change, production within this range is projected to remain more than sufficient to meet domestic needs when dry conditions return.

Domestic consumption for barley is forecast to fall by 10% from 3.3 million tonnes in 2020–21 to 3.0 million tonnes in 2021–22 and fluctuate around this level over the outlook period. Improved seasonal conditions in 2020–21 across south-eastern Australia and timely rainfall across southern and central Queensland are expected to support sufficient pasture growth for animal herds and result in reduced use of barley as supplemental animal feed.

Australian production, stocks and export of barley, 2016–17 to 2025–26z
Australian barley production is forecast to fall from 2020–21 levels over the outlook period. Barley production is expected to be constrained by reductions in planted area because of tariffs imposed on Australian exports by China.
Barley stocks and exports are expected to fluctuate with production.
f ABARES forecast. s ABARES estimate. z ABARES projection.
Sources: ABARES; ABS

Grain sorghum production is expected to rebound from a 50-year low of 298,000 tonnes in 2020–21 to 1.5 million tonnes in 2021–22, because of the easing of drought conditions in southern Queensland and northern New South Wales. Grain sorghum production is expected to fluctuate between 1.4 and 1.6 million tonnes across a range of seasonal scenarios to 2025–26. The recovery in grain sorghum production is also expected to increase competition between grain sorghum and feed barley in animal feed rations.

Australian production and stocks of grain sorghum, 2016–17 to 2025–26z

Australian production of grain sorghum is expected to recover from the 50 year low of 2020–21 ranging between 1.4 and 1.6 million tonnes over the outlook period to 2025–26.
Stocks of grain sorghum are expected to increase from 39,000 tonnes in 2020–21 to nearly 600,000 tonnes in 2025–26. Exports are also expected to increase from 390,000 tonnes in 2020–21 to 720,000 tonnes as production recovers.

f ABARES forecast. s ABARES estimate. z ABARES projection.
Sources: ABARES; ABS

Carry-over stocks of barley are expected to recover from the lows of 2019–20 to 2.5 million tonnes in 2020–21—an increase of 48%. Similarly, carry-over stocks of grain sorghum are expected to increase to 161,000 tonnes in 2021–22 – an increase of 420%. Over the outlook period, stocks are projected to remain at or around current levels, with closing stocks in 2025–26 projected to be around 1.7 million tonnes of barley and 550,000 tonnes of grain sorghum (subject to seasonal variability).

Australian exports remain competitive on international markets

Exports of barley from Australia are expected to fall in 2021–22, declining 22% to 7 million tonnes. This reflects a decline in domestic production from 2020–21 levels.

Despite being subject to China's prohibitive import tariffs, barley exports from Australia are expected to remain competitive in international markets. As a result of the reorganisation of global barley supply chains to meet Chinese demand, Australian export prices have fallen below those of major competitors in the Black Sea Region and Europe. Australian barley has become more competitive in alternative markets, particularly in Saudi Arabia, which is the second largest importer of barley for animal feed after China. Malting grade Australian barley has also become competitive in new markets, including Mexico for use in beer production.

Opportunities and challenges

Long-term effects of COVID-19 on consumer behaviour are unknown

The shorter-term impacts of COVID-19 on consumer demand for products derived from coarse grains, including biofuels and alcohol and high-value meat products from feedlots, are reasonably well understood. However, the long term implications of COVID-19 on consumer spending create risks and opportunities for grain markets. For example, a substantial shift away from eating out at restaurants may have reduced the demand for animal feed for some years. Similarly, a shift toward working from home is expected to lead to longer term reductions in demand for biofuels, including ethanol from corn.

United States rejoins Paris accord

Following the inauguration of the Biden administration, the United States has re-joined the Paris climate accord. A renewed focus on environmental sustainability and climate change action is expected to impact ongoing demand for corn as an input into the production of biofuels for the US market. However, the effect is uncertain. An increase in the use of corn for biofuel is expected to further exacerbate the effect of shortfalls in US production of corn and lead to a reduction in US exports. As a result, global corn prices are likely to increase because of area constraints on a global supply response. In contrast the electrification of transport would lead to a reduction in demand for biofuels – and subsequently corn – over the long term.

Long-term drought impacts in Australia

The drought that occurred across Australia from 2018–19 to 2019–20 was severe, with rainfall significantly below average across much of the continent. The effects of the drought on livestock industries continue to linger despite more favourable seasonal conditions in 2020–21. The significant destocking that occurred across Australia during the drought is expected to result in a prolonged herd recovery period, particularly for cattle. The maintenance of stock on farm to facilitate herd rebuilding is expected to result in reduced demand for grain by the feedlot sector in the short term. However, an increase in the national animal herd is also expected to lead to increased animal feed demand when dry conditions return.

Severe events commonly result in 'scarring' and significant changes in behaviour. As a result of drought conditions, farm operators may become more risk adverse and retain more grain on farm to mitigate drought risk. Similarly, the retention of grain on farm may also enable the smoothing of income, with stored grain either fed or sold.

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Last reviewed: 1 March 2021
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