THE AUSTRALIAN grains sector, with its focus on servicing the domestic market in the wake of severe drought over the past two years, has been largely insulated from the ongoing tensions of the so-called US / China trade war.
However, a Rabobank grains industry analyst has warned that should Australian production return to more normal levels, an assumption that the fall-out from the trade war will have an impact grower returns at a farmgate level, although it is not yet known whether it will be a positive or a negative.
While Cheryl Kalisch Gordon, Rabobank senior grains and oilseeds analyst, said farmers were yet to see the elusive autumn break as yet, she said should there be the prospect of an improved local season pricing cues would again come from international, rather than domestic, markets.
She said the delicately poised negotiations between the US and China meant it was difficult to foresee whether the final outcome is a positive or negative for Australian grain exporters.
"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," Dr Kalisch Gordon said.
One possible scenario she raised in her report, 'Australian Grains - Trade War Tremors Descend on Dry Down Under' was that no US / China deal went through and that China continued to look to diversify its grain purchasing, which could mean more Australian grain.
On the other hand, she said the US and China could agree on a massive trade deal, which committed China to increasing its importation of US goods.
Another negative scenario is that the two countries remained at loggerheads and Australia, as a close ally of the US, became dragged into the trade stand-off.
Dr Kalisch Gordon said the only certainty was that whatever the outcome it would shape markets, particularly in the Asia-Pacific region.
"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."
"If either of the negative scenarios eventuate, we could potentially see the value of grain and oilseed exports from Australia to China fall by as much as 18 per cent below the five-year average for 2013/14 - 2017/18," Dr Kalisch Gordon said.
"In contrast, however we could gain by as much as five per cent in the scenario that China turns to Australia and others at the expense of the US."
Under all circumstances though, the bank expects Australian domestic wheat prices to fall in the coming year compared with 2018/19 highs as domestic supplies improve.
In contrast, Australian barley and sorghum prices will be highly impacted by the way in which the trade war plays out, and only push above five-year average pricing if the focus of the tensions remains between the US and China.
"The findings reconfirm the importance of crop choices and risk management strategies for Australian grain farmers and supply chain participants," Dr Kalisch Gordon said.