AS the dust settles, and the early panic (and anger) subsides, we feel it is important to focus on the alternative markets that may become available to Australian barley now that China has decided to look elsewhere.
Despite local barley coming under pressure from China's boycott, the global barley balance sheet hasn't changed, in that the supply and demand ratio is still relatively even.
What will change, however, is the trade flow - when one door closes, another one opens.
The United States Department of Agriculture (USDA) estimates China's barley imports for 2020/21 at six metric million tonnes (MMT).
This estimate could be viewed as conservative if we consider the current values of the Dalian Corn exchange (Chinese Corn Futures Market) which has been trading at five-year highs.
The last time Chinese corn was this strong was in the 2014/15 season where China imported 9.8mmt of world barley, if this occurs then we will have a world balance sheet problem.
p Possible trade flows post tariff implementation.
The tariffs rule Australia out, but they do not change China's demand for feed.
This will most likely redirect demand from Australia to European and Ukrainian origins, which will reduce supplies for Middle East markets which these origins traditionally supply.
The USDA is forecasting Middle East/North African demand (Saudi Arabia, Iran and Morocco) to be about 11mmt.
This would most likely be filled by Russia (exports 3.5mmt) and Argentinia (exports 1.5mmt) leaving a possible 6mmt hole that needs to be filled from other origins, of which Australia should be competitive.
This is presuming that production remains stable, but recent downgrades in the French crop and dryness concerns in Russia and the Ukraine could add further supply pressures.
How does Australian barley price into the Middle East?
The value of barley in the Black Sea is about $US180 FOB, with French values being about $8 higher.
To arrive at a December value we need to add some carry costs ($10) to the above number.
If we don't see aggressive selling in Argentina then Australia will need to price at $US190 FOB in new crop to compete into Saudi.
That equates to: $190/0.655 (AUD) - $35 (FOBBING) + $11 (Receival Fee) = $266 FIS (Kwinana)
Russian harvest pressure may result in prices there possibly dropping to a low of $US170 FOB but there is a lot to play out yet.
So while Australia may no longer be on the barley VIP list (at least in China's eyes), we are still in the mix for the rest of the world.