China weighs on wheat
CHINA may seem like a long way from Australia. But events in both China and Russia can have an immediate impact on the price of Australian wheat.
Speaking at last week’s Australian Grains Industry Conference, CME Group senior economist Erik Norland said Australia’s wheat price was increasingly connected to “macro economic factors”, particularly with what was happening in Russia and China.
❝Russia and the Ukraine are by far the two biggest exporters of wheat in the world.
— Erik Norland
“Russia and the Ukraine are by far the two biggest exporters of wheat in the world,” Mr Norland said.
“They export about 7 per cent of global production of wheat, which is more than twice as much from the US, it’s much higher than Australia, Argentina and Brazil.
“They are an extraordinarily important exporter.”
A Commonwealth Bank market analysis report, published last week, said the Australian dollar was always understood to be heavily influenced by global economic growth, with the enduring China and US trade spat cited as affecting wheat prices this week.
The ASX east January wheat contract was $345/tonne late last week, which was down on last year’s figure of about $380/tonne.
A lack of a trade resolution between China and the US had “eroded a thin layer of optimism that a trade deal (is) getting closer”, according to the report, and was a contributing factor in the Australian dollar falling last week against the greenback.
Mr Norland said if the Russian rouble weakened, their farmers would be given an enormous competitive advantage.
“They can export, very cheaply,” he said.
“And, if the currency strengthens, that causes our cost of production to rise.
“That tends to lift the price of wheat when seen from the US dollar perspective,”
“Now, China comes into this in an indirect way.
“When China grows more quickly, they’ll buy more energy and metals.
“And that tends to be very positive for the currencies of energy and metals exports, including Australia’s biggest exports iron ore and coal.
“And so for example, if China grows more quickly, it tends to cause petrol prices to rise, which in turn causes a stronger Russian rouble, which in turn lifts the dollar price of wheat globally.
“And we see a very similar phenomenon happening with corn and soya beans to China’s impact on Brazil.”