Logistics

Grain sector works its way through COVID disruption

Neil Lyon, July 26, 2021

THE grain industry has not escaped the impacts of the global COVID-19 pandemic with disruption across the board from shipping and grain exports to the importation of vital farm inputs.

In its latest report titled ‘Uncovering and minimising the impacts of COVID-19 logistics disruption’, AgriFutures highlights the flow-on effects the pandemic has had on Australia’s agricultural supply chains.

“In contrast to other rural industries, grains were most impacted by the inability to import key production inputs, in high demand during a record growing season,” the report said.

“A surge in Australian demand occurred for fertilisers, chemicals and other inputs, which couldn’t be sourced from China as usual, due to lack of product availability and understaffed ports.

“The inability to import inputs meant some producers have struggled to plant seeds in the ground.

“Australia has a high dependence on inputs manufactured abroad, increasing exposure of the industry to global logistics. For example, a particularly cold Chinese winter diverted fertiliser and reduced availability to the global market.”

Other disruptions to the grain sector over the past two years include:

  • Access to truck drivers and vehicles in Western Australia that slowed/reduced bulk exports.
  • Industrial action at the Port of Botany that severely impeded container trade.
  • Logistics uncertainty resulted in price volatility, making supply forecasting more challenging.
  • Market access instability resulted in cancelled routes and lost export opportunities.

Price-driven demand

The AgriFutures report found that global demand and prices for grains were at record high levels, putting significant pressure on the logistics sector.

The increasing global grains prices were helping offset high shipping prices.

The ongoing increases in global grains prices are presenting major opportunities for Australian grain exports in response to a poor Brazilian corn crop, ongoing drought in the United States and Brazil, and strong demand from China.

Exporters continue to ship as much as they can as quickly as they can, pending the availability of freight.

Demand for bulk freight space continues to rise, hindered by global port congestion.

Alternative barley markets

In the wake of the imposition by China of an 80.5 per cent tariff on Australian barley imports, the report found the industry was continuing to strengthen alternative barley trade relationships.

Australian barley exports have been expanding across South-East Asia, the Middle East, and Mexico.

Ships in the Red Sea carrying barley from the EU and Ukraine to China are crossing paths with Australian barley ships on route to the Middle East, reflective of the uniquely long lead times and high shipping costs of alternative logistics routes.

Ports are at capacity to meet demand for Australian barley, wheat and canola in these markets, and demand is not expected to reduce in the near term.

Increased shipping congestion

The AgriFutures report said China’s record grain import levels were increasing congestion in the region, with the flow-on effects impacting Australian exports:

  • China’s grain imports have surged to support the recovery of hog herds post swine fever.
  • Some grains vessels have been delayed for as long as a month outside southern Chinese ports, incurring hefty delay fees.
  • While Australia’s container grain exports to China are minimal, this delay still increases the risk of congestion for non-barley exports, availability of container capacity in Australia, and flow-on disruption to new premium barley markets like the Middle East and South-East Asia.

Expansion in grains trade

The report found that expansion in global grains trade will impact Australia’s distribution of exports as well as other industries.

The flow-on impacts include:

  • June saw a rise in demand for corn from the Middle East, North Africa and Asia, resulting from Brazil’s drought and Ukraine’s reallocation of most of its corn exports to China. China is estimated to import a record 26 million tonnes of corn this year and continuing into next year, according to the US Department of Agriculture.
  • While Australia does not produce large volumes of corn, rising demand may increase the opportunity in the medium to long term for Australia’s other grain exports, given that global corn supply will increase consumption of other grains such as Australian wheat.
  • Canola has also experienced some of the highest prices within the grains category globally, generating significant interest from Australian exporters. Global wheat prices have been averaging US$358 per tonne, and canola at around US$840 per tonne.
  • These record-high global grains prices are increasing the price of feed for Australian livestock. In the short term, high feed prices are supported by high domestic livestock prices. If the market is not willing to continually bear the costs of increased feed, this may cause a shift away from grain-fed livestock production in the long term. However, this is not seen as a likely scenario given the livestock industry’s current focus on increasing national herd size.
  • China’s corn imports in the first four months of 2021 have increased four times the size, and sorghum imports five times the size, of imports for the same time in 2020, indicating continued pressure on supply and opportunities for other grains crops to plug gaps in supply.
  • Demand for canola from the European Union to support its bioenergy market continues to create attractive opportunities for Australian grain exporters given premium prices offered. Australian producers and exporters continue to comply with the strict environmental regulations on grains production and handling that the EU’s bioenergy market imposes. Predictions of an incoming carbon border adjustment tax may significantly change the processes that enable this compliance, as well as the supporting logistics in sending grains to the EU.
  • Exporters continue to place emphasis on grains storage facilities on-farm and at ports as a means of ensuring product quality. Extended time in storage or in containers at ports can raise concerns, however this is not seen as an immediate risk.

 

Read the full report ‘Uncovering and minimising the impacts of COVID-19 logistics disruption’

 

HAVE YOUR SAY

Your email address will not be published. Required fields are marked *

Your comment will not appear until it has been moderated.
Contributions that contravene our Comments Policy will not be published.

Comments

Get Grain Central's news headlines emailed to you -
FREE!