Coarse grains: December quarter 2020
World coarse grain prices remain resilient despite global uncertainty
The world indicator price for corn (maize) is expected to increase by 3% year-on-year to US$168 per tonne in 2020–21. World production of corn is expected to reach a record high in 2020–21, however world demand, particularly from China, is expected to outpace production despite the COVID-19 pandemic.
The world indicator price for barley is also expected to increase by 15% to US$210 per tonne. World barley prices are being supported by increasing demand from China, dry conditions in the Black Sea region and reduced barley plantings in the United States. Demand for barley internationally is also being supported by prohibitive tariffs on Australian exports of barley to China, necessitating a reorganisation of supply chains in China away from Australian production to alternative sources.
The COVID-19 pandemic has not caused a discernible increase in price volatility in coarse grain markets. Price changes appear to have been driven by increasing global demand and expectations of crop size.
Australian barley prices to fall
In contrast to rising world prices, Australian prices are expected to ease, declining to $230 (US$167) per tonne. Rising barley production on the east coast and declining domestic demand are expected to result in a substantial exportable surplus across Australia and a rebuilding of domestic stocks. Expectations of above average summer rainfall for much of the continent is expected to support pasture growth and increase grain sorghum production. If realised this is expected to increase competition between grains in animal feed rations during the forecast period.
World production continues to increase
World production of coarse grains is expected to increase by 3% to 1.4 billion tonnes in 2020–21 underpinned by rising corn production. Dry seasonal conditions in the Black Sea region and Europe have led to lower production with Black Sea corn production falling 15% to 43 million tonnes and EU corn production falling 4% to 64 million tonnes in 2020–21. However, the decline is expected to be offset by rising production in North America, China and South Africa. Corn prospects in South America are also positive with record production expected in Brazil and near record production in Argentina. This outlook is underpinned by increases in planted area, however due to below average August to October rainfall realised planted area and yield prospects are highly dependent on favourable summer rainfall in key growing regions.
Barley production is expected to remain stable year-on-year at 156 million tonnes. Production in Australia and the Russian Federation is expected to increase as a result of favourable seasonal conditions and increased plantings. However, these increases are expected to be offset by falling production in Ukraine and Argentina following dry seasonal conditions and reduced plantings.
Chinese demand underpins international coarse grain markets
Demand for coarse grains from China has supported global markets. Chinese consumption is expected to increase by 2% to 302 million tonnes, supported by the Chinese government's success in controlling COVID-19 and the ongoing recovery from African swine fever. Despite near record domestic production, this is expected to be insufficient to meet domestic needs. A disparity between expected domestic demand and supply has resulted in rising domestic grain prices, increasing demand for imports. Chinese imports of coarse grains are expected to reach record levels in 2020–21, increasing 49% year-on-year to 26 million tonnes. As a result of rapidly increasing demand, Chinese national stockpiles are also expected to decline by 4% to 192 million tonnes.
Domestic demand for coarse grains in the United States, particularly corn as animal feed and for food and industrial uses, is expected to remain stable at 319 million tonnes, despite the ongoing impacts of COVID-19. The use of corn for ethanol production in the United States recovered in the final quarter of the marketing year (October to September), increasing by 27% to 31 million tonnes after falling as a result of the impacts of COVID-19 on the transport and tourism industries.
Continued strong demand for coarse grains, particularly from the United States and China, is expected to outpace production growth and result in a 3% decline in global stocks to 321 million tonnes, the lowest level since 2014–15.
Australian production of barley surges as domestic demand falls
Australian production of barley is expected to increase 33% to 12 million tonnes in 2020–21, following favourable seasonal conditions across south-eastern Australia. Above average spring rainfall is expected to offset below average winter rainfall, supporting grain fill and leading to above average yield prospects. However, dry seasonal conditions across Western Australia are expected to result in lower than expected yield prospects for barley in that state.
Prospects for summer grain sorghum crops are favourable. Above average rainfall forecast across Queensland and northern New South Wales is expected to result in above average plantings. Grain sorghum production is expected to be above the ten year average in Queensland as producers who experienced a poor winter 2020 cropping season take advantage of the improved seasonal conditions over summer. In contrast grain sorghum production in New South Wales is expected to be below the ten year average because of above average winter crop plantings in New South Wales in 2020 (See Australian Crop Report).
Domestic demand for barley and grain sorghum is expected to remain subdued. Although the ongoing recovery from the COVID-19 pandemic is expected to support demand from the food services sector, this is expected to be more than offset by a decline in the use of grains for animal feed. Favourable seasonal conditions across Australia are expected to lead to reduced demand for supplementary animal feed with pasture growth sufficient to maintain and rebuild animal herds.
As a result of rising domestic production and declining domestic demand, Australian barley stocks are expected to recover after 3 years of drought. Stocks are expected to increase by 52% in 2020–21 to 2.5 million tonnes.
East coast barley surplus to drive export growth
Rising east coast production and declining domestic demand are expected to result in a significant east coast grain surplus available for export. Export of barley from Western Australia is also expected to continue despite dry seasonal conditions. Total Australian exports of barley are expected to increase by 64% year-on-year, to 7 million tonnes in 2020–21. This is despite the imposition of prohibitive tariffs on Australian barley exported to China and the ongoing COVID-19 pandemic. Important markets for Australian exports in the 2020–21 marketing year include Saudi Arabia and other Middle Eastern countries, Japan and south-east Asia.
Opportunities and challenges
Summer La Niña to improve yield prospects but may affect grain quality
The development of a late spring and summer La Niña is expected to result in above average rainfall across eastern Australia. Although above average rainfall has supported winter crop production and is expected to improve future summer and winter crop yield prospects, wet harvesting conditions are expected to be detrimental for the 2020–21 winter crop in affected areas. Harvesting grain with a high moisture content is likely to lead to reductions in quality and increased storage costs, resulting in lower than otherwise expected improvements in farm profitability. However these downside risks are expected to be more than offset by a significant increase in production.
Changing US response to COVID-19
The recent US election and a likely change in the government response to COVID-19 are expected to increase uncertainty in global grain markets in the short term. An incoming Biden administration has proposed strict localised lockdowns and mask mandates, which may lead to disruptions to ongoing demand for fuel ethanol and food service sector activity. However the announcement of a possible vaccine candidate on 10 November 2020, a potentially divided US Congress, and a reluctance from state governments to instigate lockdowns may mitigate the potential for future lockdowns.
Lower domestic prices increase competitiveness in global markets
Rising domestic production and ongoing trade tensions with China have led to Australian barley export prices falling below the world indicator price. The world price reflects the prices available to exporters with access to the Chinese market. A prolonged period of Australian export prices remaining below the world price is expected to result in substitution away from barley production (see impact of barley tariffs). However, in the short term Australian barley has becomes more cost competitive, providing an opportunity for Australian exporters to open new markets and increase market share in existing markets.
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