Expert grains industry analysis and commentary from AEGIC’s Economics and Market Insight Team on a range of big-picture topics that affect Australia’s export grains sector.

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Horizons #77: Grain supply is not always just about price

Horizons #77: Grain supply is not always just about price

Seeing it’s the AFL 2022 finals, I’d like to start with a quote from former Footscray, West Coast and Collingwood coach, Mick Malthouse. He famously quoted a Confucian saying, “The ox is slow but the earth is patient.” The key meaning was that for a football team, change does happen, it just takes time, so you need some patience. How does this relate to grain prices?

Horizons #76: Gut-running: not really, could do better!

Horizons #76: Gut-running: not really, could do better!

The AFL 2022 finals are underway and morning coffees are likely to be full of dissection of the weekend triumphs or woes. Amid the conversations, you may very occasionally hear the word “gut-running”, referring to the players with remarkable athletic endurance.

Horizons #75: China in perspective

Horizons #75: China in perspective

Much media attention focuses on political and economic tensions between China and many other regional and western nations. In the case of Australian agriculture, attention is often focused on the trade restrictions imposed by China on a range of Australian export goods like wine, barley and lobsters. Yet China remains an important provider of many manufactured goods used in Australia, including Australian agriculture. As Figure 1 shows, there are many goods imported by Australia for which China is either the main supplier, or one of the main suppliers. In brackets after the description of each import item is the share of imports of that item that come from China.

Horizons #74: Is this as good as it gets?

Horizons #74: Is this as good as it gets?

Farmers with long memories tell their grandchildren that there was a time in Australia when wheat prices were so low that Australian wheat production had to be restricted to help drive up prices. At the instigation of the Australian wheat industry, in 1969 restrictions were placed on the quantities of wheat that could be delivered to the Australian Wheat Board. Each wheat grower was given a quota to reduce the build-up of excessive carryover stocks after the record 1968–69 Australian wheat harvest that coincided with increased world wheat stocks that suppressed global wheat prices.

Horizons #73: Sustainability labelling – where are Australia’s key grain export markets heading?

Horizons #73: Sustainability labelling – where are Australia’s key grain export markets heading?

Opportunities for Aussie grains are on the rise in South East and North Asia as consumers increasingly look at not just price, but sustainability and health benefits, when choosing grain-based foods.
Labelling on products can provide a consumer with information that helps the consumer to buy the product, or not. Recent research by AEGIC scrutinised the labelling claims on grain products in South East and northern Asian markets. We investigated the type of claims made on these products, the food sectors they are used in, and the prevalence of claims on new food products. And, we looked ahead at leading markets to get an indicator on the direction in which labelling could go.

Horizons #72: What’s behind the cost of shipping?

Horizons #72: What’s behind the cost of shipping?

Since the mid-2000s the bulk freight capacity of international shipping has grown strongly (Figure 1), on the back of a huge ship-building program in the period 2006 to 2012 (Figure 2).  However, in very recent years new construction of bulk ships as a proportion of the trading fleet has been very low (Figure 2), despite the volume of grain traded globally continuing to grow as has demand for other main bulk commodities (iron ore and coal).

Horizons #71: Poised for plenty?

Horizons #71: Poised for plenty?

It could be that many Australian grain farmers are soon to have another fine season; underpinned by the separate or combined forces of high grain prices and favourable yields. What’s the evidence to support that statement? Firstly, when Russia, the world’s largest wheat exporter, invaded Ukraine, the world’s fourth largest wheat exporter; it caused a cascade of problems that inevitably will support high wheat prices for months. Ukrainian access to its key southern ports from which it cost-effectively exports its wheat is no longer possible. Moreover, the size of the Ukrainian winter wheat crop harvest this year will be markedly less, as field operations that would normally support usual yields are no longer feasible. Ukraine’s main farm group is forecasting 18.2mmt of Ukrainian wheat production in 2022-23, a 15mmt drop from the 2021-22 crop year.

Horizons #70: Biscuits, cookies and crackers in Asia

Horizons #70: Biscuits, cookies and crackers in Asia

Some recently released market research from Mintel confirms there are sound growth prospects for the consumption of biscuits, cookies and crackers in Asia. As shown in Figure 1, Australia and New Zealand consumers already individually consume on average over 6 kilograms of biscuits, cookies and crackers each year. By contrast, consumers in many Asian countries individually consume far less; but the prospects for consumption growth over the next five years make those markets attractive to suppliers of the ingredients (e.g. wheat flour) for those products.

Horizons #69: What have the Romans ever done for us?

Horizons #69: What have the Romans ever done for us?

There is a famous Monty Python sketch that touches on “What have the Romans ever done for us?” where one character repetitiously asks that question; only to eventually receive a long list of things provided by the Romans — sanitation, medicine, education, wine, public order, irrigation, roads, a fresh water system, public health, and peace.

Horizons #68: China’s growth leads to more imported grains (and oilseeds)

Horizons #68: China’s growth leads to more imported grains (and oilseeds)

A structural shift appears underway in China. Its rising per capita wealth is causing dietary change that generates greater dependence on feed grains and oilseeds. China can no longer satisfy its grain and oilseed demand wholly and simply from its domestic supply. As a result, imports of grain and oilseed imports are increasing and imports are forming a larger share of China’s grain and oilseed supply. This is creating new or enlarged structural market opportunities for some Australian grains and oilseeds.

Horizons #67: Wheat versus wool

Horizons #67: Wheat versus wool

Most farmers, or at least their parents, will remember the heady days of the late 1980s when there was a resurgence in wool prices. In 1987/8 the eastern market indicator for wool averaged 1117 cents per kilogram, a price level farmers would not see again for 23 years. After the crash in wool prices in the early 1990s wool fell out of favour for many farmers.  In the 1990s many farmers in Australia switched their enterprise mix away from wool into crop production and sheep flock structures mostly moved away from wool towards sheep meat production.

Horizons #66: Asia’s WOW factor

Horizons #66: Asia’s WOW factor

What is Asia’s WOW factor that will affect market opportunities for Australian grains? It’s simply that Asian populations are becoming wealthier, older; and the combination of age and wealth seems to be generating wiser consumption. So, the WOW factor is consumers becoming wealthier, older and wiser.

Horizons #65: Payment for quality

Horizons #65: Payment for quality

An article in a recent National Poultry Newspaper caught my attention due to its similarity to an issue often raised in the grains industry: payment for quality.

Horizons #64: Is Big Best?

Horizons #64: Is Big Best?

The ability of large farms to extract advantages from economies of size still seems to be true. When I was an undergraduate, the late Henry Schapper at my university gained a somewhat infamous reputation for his slogan that farmers needed to get big or get out. The idea was simple. Production of agricultural goods was underpinned by economies of size so spreading large fixed costs across more hectares helped lower unit costs of production and raised profit margins per hectare.

Horizons #63: Organisational competition

Horizons #63: Organisational competition

Often in introductory economics courses, diagrams are drawn of downward sloping demand curves and upward sloping supply curves and their intersection is known as the market clearing price. Implicit in these diagrams are a range of assumptions not always made evident to students. One of the key assumptions is the homogeneity of the good being produced and demanded.

Horizons #62: (Part 2) What consumers pay for bread and cereals across the globe

Horizons #62: (Part 2) What consumers pay for bread and cereals across the globe

Australia’s national anthem says it all: Our land abounds in nature’s gifts of beauty rich and rare. For decades we’ve been selling off our mineral wealth; coal, iron ore, nickel, zinc and gold to name a few. Lands have been cleared; crops planted, sheep and cattle introduced, and agricultural wealth generated. People with skill and opportunity have flocked to Australia and helped develop a rich, diverse economy.

Horizons #61: (Part 1) What consumers pay for bread and cereals across the globe

Horizons #61: (Part 1) What consumers pay for bread and cereals across the globe

Consumers in different countries pay different relative prices for bread and cereals, and grain flows and market prospects are affected. For various reasons, governments in some countries introduce policies to make bread and other cereal-based foods more affordable to their populations. Egypt subsidises bread consumption. Russia imposes wheat export taxes to make its wheat domestically more affordable. India imposes a raft of policies to ensure grain-based foods are affordably available to its low-income groups. At the other end of policy spectrum, the Japanese government controls the importation and sale of certain types of grain to provide income support to Japanese farmers, with Japanese consumers then paying more for certain bread and cereal foods.

Horizons #58 – Fuzzy logic: identifying tomorrow’s drivers

Horizons #58 – Fuzzy logic: identifying tomorrow’s drivers

Proposing valid, long term grain consumption scenarios – as required by players in the Australian grains industry – requires a different approach and tools to short-term forecasts, some of which are slightly fuzzy and challenging for us data driven analysts.

Horizons #57 – The pie is getting bigger: why grain market growth rates matter

Horizons #57 – The pie is getting bigger: why grain market growth rates matter

Australia continues to increase its production and export of wheat; Australia’s principal grain. However, growth rates in the global export of other grains outstrip that of wheat. This is causing the pie of international traded grains to grow, with Australian wheat’s share of that pie gradually shrinking; even though wheat production in Australia remains profitable.

Horizons #56 – Dorothea Mackellar is still right!

Horizons #56 – Dorothea Mackellar is still right!

Australia’s climate remains highly variable, challenging agricultural production and its related sectors. Yet despite Australia being a global leader in volatility of agricultural production, farmers and scientists are consistently delivering improvements to ensure farming remains profitable.

Horizons #55 – Niche markets: pros and cons

Horizons #55 – Niche markets: pros and cons

Loss of a major grain market like China’s barley market can trigger calls for greater market diversification and more niche markets. However, developing niche markets has pros and cons. Developing niche markets usually requires careful effort.

Horizons #51 – The Lucky Country

Horizons #51 – The Lucky Country

Australian grain farmers can count themselves fortunate. The economic and climatic conditions in a 2020 world affected by COVID, as luck may have it, have actually favoured Australian grain farmers. Yet again, Australian grain farmers can say they live in the Lucky Country.