The sweet and sour of China's 16 million tonne pork 'hole'

China's 16 million tonne pork 'hole' sweet and sour news for Aussie farmers

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SIMON SAYS: Rural Bank's general manager for sales and distribution, Simon Dundon.

SIMON SAYS: Rural Bank's general manager for sales and distribution, Simon Dundon.

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The Rural Bank says the decimation of China's pig herd by African swine fever is bringing good and bad news for Australian broadacre farmers.

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The 16 million tonne hole left in China's domestic pork production because of African swine fever and ongoing drought in wide parts of Australia are the two key factors shaping the outlook for beef, sheepmeat and grain prices.

That was the main message from the Rural Bank's mid-year outlook report for Australian agriculture.

The bank said African swine flu (ASF) would slash Chinese pork output by more than the total US average annual production, creating a protein shortage which China was now seeking to partly fill through meat imports.

While this was good news for Australian beef and sheepmeat producers, the disease's decimation of China's pig herd was putting downward pressure on domestic and global feed grain values, Rural Bank's general manager for sales and distribution, Simon Dundon, said.

Further compounding the picture was ongoing distortions to China's trade caused by recent tensions with multiple trade partners, including Australia, which had added uncertainty to the global marketplace.

Rural Bank, part of Bendigo and Adelaide Bank, said the drought would reduce supplies of lamb and mutton which were already at record high prices because of hot demand from China, the US and the Middle East.

China had also pushed up the volume and value of Australian beef exports but the US was putting a lid on our growth in the Japanese, South Korean and US domestic markets.

Australian wool production was expected to fall by 4.4pc over the 2019-20 season due to our shrinking Merino flock, the Rural Bank report said.

China's keen appetite for Australian beef was helping offset competition from South American producers.

Beef supply was expected to fall three per cent in the second half of the year as the impact of destocking and destructive floods in north western Queensland earlier this year were fully felt.

The eastern young cattle indicator was expected to average 500c/kg for the remainder of the year due to tightened supply and ongoing robust export demand.

"Strong export demand will increase sheepmeat values in the second half of the year, up 13pc on the same time last year. We're seeing continued demand in key export markets such as China and the US where demand growth has outpaced local supply," Mr Dundon said.

"The luxury wool market has been affected by global trends including the ongoing US-China trade war and Brexit weighing on consumer sentiment, resulting in reduced demand for high quality fine woollen products," he said.

"The eastern market Indicator (EMI) remains eight per cent above the five-year average despite a six per cent decline since the close of the 2018-19 season.

"Demand for medium micron wools should remain steady due to continued requirements for Chinese government uniforms.

"However, poor seasonal conditions have had a significant impact on overall supply which is likely to widen the gap between premiums and discounts for quality wool," Mr Dundon said.

Meanwhile, the outlook for broadacre cropping wasn't so bright.

Favourable seasonal conditions in the northern hemisphere were expected to support bigger global crops, keeping pressure on Australian prices.

The Australian winter grain crop was expected to increase 20pc year-on-year but remain 15pc below average.

Tensions with China were affecting trade flows of barley and oilseeds, with export demand for barley expected to fall by 20pc year-on-year due to uncertainty surrounding China's anti-dumping investigation into Australian barley imports.

"Global demand for Australian crops continues to ease across the sector with larger global crops entering the market expected to put pressure on profitability for Australian producers," Mr Dundon said.

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