Coarse grains: June quarter 2020

Peter Lock

World corn prices are expected to fall 5% to US$157 per tonne in 2020–21 because of record world production

World and domestic prices to fall

World and domestic barley prices to converge

World barley prices are expected to fall in 2020–21 to US$176 per tonne as a result of near record global production and growing competition from other grains in feed markets. The world barley indicator price is expected to remain at around US$181 per tonne for the rest of 2019–20.

Australian barley prices are expected to fall over the remainder of the 2019–20 marketing year (1 November to 31 October) and into 2020–21. During the drought, increased use of animal feed led to high domestic prices and a greater proportion of production being consumed domestically. The cost of complying with strict biosecurity protocols for bulk grain import permits drove domestic prices well above world prices. In response to improved seasonal conditions and reduced drought-related feed demand, high domestic barley prices have begun to converge with lower world prices.

International demand for Australian barley is expected to fall because of newly imposed tariffs by China—Australia’s largest barley market. Chinese tariffs on barley are expected to be prohibitive, resulting in a cessation of Australian barley exports to China. A loss of competitiveness in China is expected to result in a diversion of Australian barley to alternative lower-value markets, including Saudi Arabia, Japan and Vietnam.

World corn prices

World corn prices are expected to fall in 2020–21. Record plantings in the United States and favourable growing conditions across most of the northern hemisphere are likely to more than offset the expected recovery in demand as the effects of COVID-19 diminish.

The world corn indicator price is expected to remain at current levels around US$165 per tonne for the rest of the 2019–20. A continuation of low corn prices is the result of a continued high supply of feed grains. This is reinforced by better than expected harvests across most of South America despite dry seasonal conditions in southern Brazil. Demand shocks resulting from COVID-19—including the effects of lower oil prices on corn ethanol production—are also placing downward pressure on prices.

Global production to reach record highs

World coarse grain production is expected to increase in 2019–20 due to near record corn production in North America, and record barley production in the European Union. Despite dry seasonal conditions, higher than expected corn yields in South America are also expected to support production in 2019–20.

Expected record world corn production in 2020–21 will be underpinned by record production in the United States and near record production in the European Union and China. US corn plantings are expected to increase by 10% year-on-year, EU and Chinese corn plantings are also expected to increase by between 1% and 2%. Average to above average yields are also projected, reflecting expectations of generally favourable growing conditions for much of the northern hemisphere summer. Government support programs, especially in the United States, are likely to support corn production in 2020–21. This is despite COVID-19 related falls in oil prices and consequent reduced demand for corn-based biofuels.

Global production and world indicator prices for coarse grains, 2016–17 to 2020–21
World coarse grain production is expected to remain stable in 2019–20 before reaching record levels in 2020–21, underpinned by rising corn production.

World prices for corn are expected to fall in 2019–20 and in 2020–21 in response to rising world production.

World prices for barley are expected to fall in 2019–20 and 2020–21 in response to increased competition in animal feed markets from corn and wheat and high world production.
f forecast.
Sources: ABARES; IGC; USDA

Global demand expected to remain stable

Global demand for coarse grains is expected to remain relatively stable despite the ongoing impact of COVID-19. Most coarse grains are used for animal feed. Demand for meat and meat products, including chicken and pork, has fallen across the world because of disruptions to food service industries. However, herd numbers are expected to remain relatively stable in anticipation of a recovery. COVID-19–related disruptions to meat supply chains have been isolated and world markets for animal feed remain resilient.

The impact of African swine fever in China and East Asia remains the dominant factor influencing animal feed markets. In China, the impact of African swine fever is expected to have peaked. The recovery of the Chinese domestic pig herd is forecast to accelerate in 2021.

A prolonged period of low oil prices resulting from COVID-19–related lockdowns, travel restrictions around the world and near record oil production are expected to reduce demand for ethanol derived from corn in the industrial fuel market. The impact of reduced biofuel demand on corn consumption is expected to be partially mitigated by ongoing farm support schemes in the United States.

Improved seasonal conditions to increase Australian production

Drought conditions across most of New South Wales and Queensland reduced national coarse grain production to a 13-year low of 10 million tonnes in 2019–20. Poor seasonal conditions across northern New South Wales and central and southern Queensland resulted in record low plantings and production of grain sorghum. In contrast, 2019–20 barley production was around the 10-year average of 9.0 million tonnes due to above average production in Victoria and South Australia and close to average production in Western Australia.

Improved seasonal conditions are expected to result in a 17% increase in barley production in 2020–21 to around 11 million tonnes, 18.5% above the pre-drought 10-year average to 2017–18. An early autumn break across much of eastern Australia is expected to result in a significant increase in barley plantings, especially in New South Wales. The Bureau of Meteorology expects average rainfall across south-eastern Australia during the winter of 2020 supporting average to above average yields in New South Wales, Victoria and South Australia.

Over the medium term, Chinese tariffs are expected to result in lower export prices for barley, and some substitution towards wheat and other broadacre crops in response to lower barley margins. Short-term production impacts are likely to be relatively minor because most barley was planted before the tariffs were announced. In regions where planting had not begun, planned crop rotations are expected to constrain significant short-term changes.

If expectations of average to above average rainfall across northern New South Wales and Queensland over winter are realised, this will significantly improve prospects for grain sorghum plantings in 2020–21. Plantings are expected to increase, moderated by the success of winter crops, and spring and summer rainfall.

Demand for Australian coarse grains to fall

Domestic demand for coarse grains is expected to fall in 2019–20. Improved seasonal conditions have already resulted in a decline in drought-related supplementary feeding of livestock. The demand for animal feed from feedlots is also expected to decline in 2019–20 with improved pasture availability and the commencement of herd rebuilding. If favourable seasonal conditions continue into 2020–21, demand for supplementary livestock feeding is expected to remain low.

COVID-19–related shutdowns of the restaurant and food services industries have resulted in reductions in the demand for animal products. However, the fall in restaurant demand has been partially offset by increased home consumption. Reduced demand for animal products has also resulted in decreased feed demand from these industries. The duration and severity of the demand impacts of social-distancing restrictions is uncertain.

Australian coarse grain exports to recover in 2020–21

Australian coarse grain exports are expected to reach 10-year lows in 2019–20. Several factors have provided producers with economic incentives to sell to local markets rather than export. These include high domestic prices resulting from below average production and strong domestic demand for animal feed, and a glut of animal feed on world markets.

Coarse grain exports are expected to rebound in 2020–21 to 6.6 million tonnes. This reflects improved seasonal conditions resulting in significantly higher production and lower domestic feed demand. China has imposed import tariffs on Australian barley. However, total Australian barley exports are expected to reach 6.2 million tonnes—up by 34%.

Domestic coarse grain stocks to recover but remain tight

Drought conditions in 2017–18 and 2018–19 significantly reduced opening stocks in the 2019–20 marketing year (1 November to October 31). Stocks fell to an estimated 1.8 million tonnes in 2018–19, 34% below the 10-year average to 2017–18.

Domestic stocks of coarse grains are expected to remain low in the 2019–20 marketing year at around 1.8 million tonnes. Stocks of coarse grains are expected to increase by 65% to 3 million tonnes by the end of the 2020–21 marketing year as production recovers and drought-related demand subsides.

Australian coarse grain production, stocks and prices, 2016–17 to 2020–21f
Australian coarse grain production in 2019–20 is expected to be around 10 million tonnes, before increasing to around 15 million tonnes in 2020–21. 

Australian coarse grain stocks are expected to remain low in 2019–20. This is in response to increased drought-related feeding of livestock and poor seasonal production. Australian coarse grain stocks will increase in 2020–21 in response to higher domestic production.

Australian barley prices are expected to fall in 2019–20 from 2018–19 highs, as demand eases in response to improving seasonal conditions. Prices are expected to ease further in 2020–21 in response to higher domestic production and lower international demand.
f forecast.
Sources: ABARES; IGC; Jumbuk AG; USDA

Challenges and opportunities

Alternative markets for Australian barley

In May 2020, China imposed an 80% tariff on Australian barley imports. As a result, Australian barley is expected to become uncompetitive in the Chinese market. China is currently the largest importer of Australian barley for malting and feed purposes. However, Australia maintains market access for barley with 58 other markets including Japan, Vietnam, Thailand and South Korea.

China is expected to remain a significant importer of barley globally. Demand from China is likely to be met by barley exported from the Black Sea and European Union, which will be diverted from other markets. These markets include Saudi Arabia, the second-largest importer of barley globally. The diversion of Black Sea and EU barley from feed importers like Saudi Arabia to China is likely to increase demand for Australian barley exports to those markets—but at lower prices.

Australia is also the only country with tariff-free market access to the Indonesian animal feed barley market, with a quota of 500,000 tonnes per year coming into force July 5 under the Indonesia–Australia Comprehensive Economic Partnership Agreement (IA–CEPA).

Chinese tariffs on Australian barley are likely to have negative impacts on China's domestic industries. Australia is the largest exporter of high-grade malting barley. Chinese buyers of Australian malting barley will need to shift to higher-priced or lower-quality alternative sources—this will affect product quality and margins.

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Last reviewed: 16 June 2020
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