Australian wheat exporters retreat amid trade dispute with China

Australian wheat exporters have made the unusual decision to hold back from selling grain to China, even though demand from the world's second largest economy has increased.

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Some Australian wheat exporters have made the unusual decision to hold back from selling grain to China, even though demand from the world's second largest economy has increased.

"Obviously China is a big market but no one in their right mind would be selling to them and putting new business into that market because of what is happening with barley and other agricultural commodities," Brett Donoghue, export manager of New South Wales-based grain marketer Agracom, told Reuters.

According to the Reuters article, a Chinese buyer who declined to be identified said China usually buys Australian wheat in the fourth quarter for shipment in January. But Chinese officials gave early warning the country would strengthen inspections on Australian wheat shipments, raising concerns of grain exports being rejected or stranded in China.

China's demand for Australian wheat continues to increase

As highlighted in the Reuters report, although China is the world's top wheat producer, it does not produce enough high quality low-gluten wheat to meet demand. Therefore China turns to Australian wheat to produce the flour used in the white, fluffy cakes that have become popular with the country's middle-class community.

The Australian Bureau of Agricultural and Resource Economics and Sciences — the research arm of the Australian Government Department of Agriculture, Water and the Environment — released its Agricultural forecasts and outlook report in December. Chinese grain consumption is expected to increase by 2% to 302 million tonnes in 2021, according to the report.

Graincorp Ltd (ASX: GNC) steady amid trade tension

ASX-listed grain handler Graincorp is an agribusiness operating in more than 30 countries. It reports that its exports to China have not been disrupted by recent tensions between Australia and China. 

Graincorp CEO Robert Spurway told the Sydney Morning Herald (SMH) the company had very close ties with its Chinese customers and its grain was competitively priced in most markets, which acted as a natural hedge against volatility in the Chinese or any other export market.

With Graincorp seeing a good demand across the globe for wheat and other grain products, the company has implemented a global diversification strategy to mitigate geopolitical risks. Graincorp has almost doubled the number of its export markets to more than 50 over the past year.

"The company has moved from somewhere in the order of 30 markets 12 months ago, to more than 50 as we sit here today, and over 340 high quality customers. We have done a good job at broadening the number of markets we trade with and the size of our customer base," said Robert Spurway (as quoted by SMH).

The Graincorp share price has increased by 17.2% to $4.43, year-to-date.

Motley Fool contributor Miles Wu has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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