China ponders ban on Aussie wheat imports

Canada is expected to pick up some market share to China if Australian wheat shipments to the Asian country are blocked.  |  Reuters/Jonathan Barrett photo

The Asian giant has disrupted trade with Australia since it asked for an international inquiry into the origins of COVID-19

Canada is likely to pick up some wheat business in China if the country blocks Australian imports, say analysts.

The South China Morning Post reported last week that China is expected to ban Australian wheat.

The article cited “industry sources” who said a date had not been set for the ban. Australia exported $540 million of wheat to China in 2019-20.

China is not pleased with Australia’s demands for an international inquiry into the origins of COVID-19.

It would be a bad year for Australia to lose its top market. Farmers down under are poised to harvest 28.9 million tonnes of wheat, which would be 22 percent above the 10-year average, according to the Australian Bureau of Agricultural and Resource Economics and Statistics.

Zane Roubal, commodity broker with FuturesOne, said Australia typically accounts for just less than half of China’s wheat imports.

He thinks Canada will be the biggest winner if Australia is dumped from the mix, followed by the United States.

The U.S. grain handling system is currently clogged with soybeans heading to China and corn will be the next crop that is moving through the system. Wheat is having a tough time competing for space.

“That’s why I thought maybe the Canadian (wheat) would be a little more favourable,” said Roubal.

Jim Peterson, policy and marketing director with the North Dakota Wheat Commission, hasn’t heard any official confirmation of the China rumours.

“I wouldn’t be surprised if it comes to fruition,” he said.

Peterson noted that China implemented a defacto ban on Australian barley when it imposed an 80.5 percent duty on the commodity on May 19, 2020.

But he isn’t so sure Canadian hard red spring wheat growers will be the biggest beneficiaries of any potential Australian trade disruption.

Australia exports a lot of white wheat to China, as well as some low- and medium-protein wheat similar to U.S. hard red winter wheat.

He is not convinced China will want to replace that with expensive Canadian hard red spring wheat.

Australian white wheat prices fell below Black Sea wheat prices in China last week for the first time in four years.

Cam Dahl, chief strategy officer with Cereals Canada, said Canada would likely pick up some market share in China if Australia is shut out.

“It definitely leaves a hole in the Chinese supply and there’s only so many countries that can fill that,” he said.

But the costs far outweigh the benefits.

“In the long-run, the breakdown of the international trading system, the movement away from trade based on economics and shifting to trade based on political might, that’s not good for Canada,” said Dahl.

Peterson doesn’t think the U.S. will miss out on the opportunity to supply more wheat to China.

He pointed out that Australia harvests its wheat crop in December and won’t have market-ready supplies until early in 2021.

U.S. soybeans will likely have worked their way through the grain handling and transportation system by then, opening the door for wheat exports to China.

He acknowledged that the current demand for rail cars is so strong that exporters are paying an additional US$3,000 to $4,000 per car or 60 to 80 cents per bushel to ship grain.

They are also paying a premium to get access to grain export terminals in places like Portland.

Those extra transportation and handling expenses are making Canadian wheat more competitive in export markets right now but that disparity should be subsiding by the new year.

Peterson warned that any gains in China for North American exporters will come at an expense.

“If (Australia is) banned on sales to China that’s obviously going to make them very price competitive in other markets,” he said.

In particular, he thinks southeast Asian markets like Indonesia and Vietnam will be doing increased business with Australia.

Dahl noted that Canadian wheat sales to Indonesia have come on like gangbusters in recent years, primarily due to poor harvests in Australia.

Indonesia has rapidly become Canada’s second biggest wheat market behind China. He expects those sales volumes to subside now that Australia has a big crop on the way and may potentially be shut out of China.

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