When China enforced a hefty tariff of 73.6 per cent, it was a real kick in the guts that left little time for Australian producers to change seeding plans.
In mid-May 2020, as farmers were still going hell for leather seeding, China announced the result of an anti-dumping investigation launched in late 2018.
The result was that China enforced a hefty tariff of 73.6 per cent as an anti-dumping duty and 6.9 per cent as a countervailing duty.
For Australian producers, it was a real kick in the guts that left little time for them to change seeding plans.
The Chinese investigation involved a period between October 1, 2017 and September 20, 2018.
To determine what led to the investigation, a little recent history is in order.
In 2016, Australian farmers produced a record barley crop of 13.5 million tonnes.
During the previous 10 years, the country had averaged 7.7mt.
Anyone with even a rudimentary grasp of economics will understand that you end up with lower prices if you have an abundant supply of a commodity and a relatively stable demand.
Accordingly, Australia shipped large volumes to China at prices that were at decade lows.
Generally, farmers are happy with the lower price but have the volume to make up for the discount.
Overall, their revenue situation was still pretty healthy.
Then, in late 2018, the Chinese government launched the investigation into allegations of anti-competitive dumping.
Given the length of China’s investigation, many market participants were concerned about potential action against Australia and were pricing this risk.
The tariff had an explosive effect on the market.
The May average price was down by 17 per cent from April, and fell a further 3 per cent in June.
While China has affected barley pricing, there would always have been a fall in pricing from the previous drought-driven levels in 2018 to 2020.
The sharpness of the fall during the point of seeding was a further blow for those holding onto old crop or looking to sell the new crop.
The reality is that barley pricing around Australia is now at the 57th percentile, on average, across the nation’s port zones.
This is not a terrible price, considering the large production of this harvest. In comparison, prices post-2016 harvest fell below the 20th percentile.
The pricing has been driven by events overseas, and to an extent, we have dodged a bullet.
If China had not ramped up its purchases of coarse grains, then overall demand would be limited to lower levels than the present.
So we can thank China for something in regards to barley. While the pricing has been reasonable compared to historical trends, there are other factors to examine.
The spread between wheat and barley is important as an indicator of the value of barley.
In 2020 and 2021, barley has jumped to a high discount to wheat.
The substantial spread makes it more attractive for domestic consumers to consider switching from wheat to barley at these levels.
If China was still in the picture for this season, it would be expected that this spread would be smaller.
Trade flows adapt and change. It’s all down to price, and there is a market for anything at a price.
While we have lost China, we have gained Saudi Arabia. Since our harvest, we have won the lion’s share of the volume in Saudi Arabia. In part, this is again due to China.
Nations that typically win tenders to Saudi Arabia are now heading to China.
This opens up a door for Australia. There have also been other wins.
We have sent a small volume to Mexico and increased trade with South-East Asia.
All in all, at the end of the current tariff regime, our barley market will, by necessity, be more diverse than it was prior to the anti-dumping tariffs.
One year down, four to go.
• Andrew Whitelaw is a manager of commodity market insights at Thomas Elder Markets (TEM)