Trade war impact is uncertain

By Country News

A return to average seasonal conditions this year will see Australia’s grain sector facing a challenge of a different kind — exposure to the fall-out of ongoing United States-China trade tensions, according to a recently released industry report.

The Rabobank report points to an ‘‘increasingly tight local grain balance sheet’’ due to severe drought conditions which had seen well-below-average national grain production for the past two years and elevated domestic feed grain demand which had so far subdued the effects of the US-China trade war on Australian grain prices.

But all that would change with good autumn rains, the report said.

Rabobank senior grains and oilseeds analyst Dr Cheryl Kalisch Gordon, who wrote the report, said an average to above-average 2019 harvest volume would renew Australia’s exposure to global markets and to ‘‘trade war tremors’’.

Trade negotiations continue between China and the US, with no conclusion yet in sight.

The eventual outcome however, could be either beneficial or detrimental for Australian grain exports, depending on which path negotiations take in the coming months, according to Dr Kalisch Gordon.

‘‘If, how, and when a trade deal between the US and China will now be agreed on, is far from certain; however, the impacts are expected to be drastic and enduring for global grain and oilseed markets and can be both bullish or bearish for global pricing,’’ she said.

‘‘This is due to the untenable dynamic of US reliance on Chinese demand for its grains and oilseeds, and China’s desire to diversify the origination of its critical goods while still meeting its rising future import needs. The dominance of these economies globally and the sheer volumes of trade in question means that whatever the outcome, there is now no prospect for business as usual on global grain and oilseed markets.’’

The report identifies three alternative trade war scenarios which may plausibly play out, and how Australian grain pricing and exports stand to be impacted during the next two years.

‘‘The first scenario is that there is no deal and US-China tensions continue to escalate and broaden to include other countries such as Australia,’’ Dr Kalisch Gordon said.

‘‘The second is that the United States and China reach a mega-deal trade agreement before the end of this financial year, committing China to substantially increasing its importation of US goods.

‘‘The third scenario is that US and China trade tensions remain high but that China turns to Australia, along with other supply counties, to help replace US grains.’’

If either of the first two scenarios eventuates, Dr Kalisch Gordon predicts the value of grain and oilseed exports from Australia to China to fall by as much as 18 per cent below the five-year average.