China-Australia relations: wheat shipments to grain-hungry China surge as total 2020 exports just shy of record high

Su-Lin Tan
·6-min read

Despite warnings that Chinese authorities might block Australian wheat amid an escalating political row, wheat exports to China surged last month, underscoring a year in which overall trade between the countries approached a record high.

After three months in which there had been no wheat trade between the two countries, hundreds of thousands of tonnes changed hands in December, valued at A$248 million (US$191.2 million), according to preliminary trade data from the Australian Bureau of Statistics (ABS).

The exchange came in sharp contrast to the tensions that rocked the China-Australia relationship for most of 2020.

Get the latest insights and analysis from our Global Impact newsletter on the big stories originating in China.

Final export figures will be confirmed early next month, but based on the preliminary international data released on Monday, Australia’s total goods exported to China reached A$145.2 billion for 2020. That would be just 2.16 per cent less than 2019’s A$148.4 billion total, which was the highest recorded in ABS data since 1988.

Amid blistering demand from grain-short Chinese importers, in part due to supply shortages in competing Black Sea markets, Australia shipped 600,000 tonnes of wheat to China last month and a further 110,000 tonnes this month, according to commodities analyst S&P Global Platts.

China food security: country faces ‘grain supply gap of 130 million tonnes by 2025’

The bumper sale to China in December accounted for a third of all wheat exported from Australia, and was its largest-ever monthly wheat export to any single country, the ABS said.

Vietnam and Indonesia each received shipments of 265,000 tonnes of Australian wheat last month, S&P Global Platts said.

Australia’s 600,000-tonne shipment was well ahead of its last record single shipment of wheat at 400,000 tonnes in early 2014, according to S&P Global Platts agricultural pricing editor Takmila Shahid.

“Given decreasing competition from export restrictions in Russia, Australia is well-placed to supply wheat not only to eastern Asia but also markets in the Middle East and Africa, regions where Black Sea and European suppliers traditionally dominate,” Shahid said.

The 600,000-tonne shipment was booked in September, and its successful export in December was a good sign that Australian wheat orders were not being turned away, unlike other commodities such as coal had been.

Chinese buyers were drawn to lower Australian wheat prices as well as its plentiful supply, particularly after Russia – the world’s leading wheat exporter – curbed its exports on the back of domestic food inflation by introducing an export tax between last February and June.

The flow-on effect led to a rise in Russian wheat prices, making Black Sea wheat “increasingly uncompetitive in the East Asian market”, S&P Global Platts added.

Russian crops also suffered from dry weather.

“With food inflation posing a problem for Russian citizens, the Russian government decided they needed to intervene … what followed was an export tax on multiple agricultural products in the expectation that domestic customers can win a bigger share of business instead of export customers,” Australian agriculture supply chain firm AWB analyst Nicholas Robertson said in a note.

Wheat export slots along Australia’s east coast were being booked up, as was train and road capacity in wheat deliveries, Robertson said.

What’s happened over the last nine months in China-Australia relations?

The China and Australia relationship soured in the past year after Canberra pushed for an international inquiry into the origins of the coronavirus without consulting Beijing. And in early November, China unofficially banned Australian imports of coal, sugar, barley, lobsters, wine, copper and log timber.

It was expected that imports of Australian wheat would be next in Beijing’s crosshairs. Instead, one of Australia’s biggest wheat harvests, after recovering from three consecutive drought years, came when Chinese demand was high and the supply was scarce.

Australian wheat production and exports are both forecast to more than double in the financial year ending June 2021, according to the latest outlook by the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES).

The soaring wheat output coincided with China going on a buying spree of wheat and grains in a massive effort to restock its agricultural supplies hurt by bad weather and to rebuild its pork industry after the African swine fever epidemic decimated the nation’s hogs.

The race to buy more agricultural and food products has also hastened following the latest coronavirus outbreaks in China in recent weeks.

Last week, all wheat on auction sold out as feed producers ramped up purchases of the grain to replace and stockpile corn – which is in short supply – as the fresh Covid-19 cases sparked concerns of possible shortages.

The tight global supply of corn – expected to last until at least June, according to S&P Global Platts – means wheat will remain in demand as Chinese importers, particularly feed producers, continue to seek corn alternatives.

There is still a risk of trade tensions hurting Australia’s wheat exports to China, but historically China had not been a significant market for Australian wheat exports, the ABARES added.

The political threat to Australia’s wheat and other food exports is generally low, as Australia’s food exports to China tend to have a low “export vulnerability score”, according to a new analysis by Oxford Economics.

Although cereals, part of wheat exports, like seafood could be very vulnerable to trade tensions, alternative export markets can be found, or wheat products could be sold to the domestic market in Australia, albeit at a lower price.

Breaking free of dependency on Australian iron ore would take years, but where is China looking?

The mining sector also has a very low export vulnerability score, with iron ore one of the strongest exports to withstand trade disruptions, Oxford Economics’ senior economist, Sean Langcake, said in his analysis on Monday. Coal, too, has a low vulnerability score. Despite being affected by trade tensions, there are alternative markets for the fuel.

Langcake warned, however, that the course of the China-Australia trade relationship remains unpredictable.

“It seems likely that sanctions will be in place for the foreseeable future, and a broader range of goods may be targeted,” he said.

Australian iron ore exports to China in December fared well after a dip in November. Shipments in December rose, and iron ore miners reaped further windfalls as iron ore prices continued to soar.

The value of Australia’s iron ore exports to China rose about 25 per cent over the month compared with November, with the volume of exported iron ores rising by 15 per cent and prices on exports up 9 per cent over the month, the ABS said.

More from South China Morning Post:

This article China-Australia relations: wheat shipments to grain-hungry China surge as total 2020 exports just shy of record high first appeared on South China Morning Post

For the latest news from the South China Morning Post download our mobile app. Copyright 2021.