China has indicated that ‘enhanced inspections’ on Australian wheat will be enforced going forward. It is another shot across the bow amid increasing tension with Beijing.

It is no doubt a political move, another warning that pushing China too hard on COVID, South China Sea, Hong Kong, Human Rights, spies/consular officials etc. etc. will not be tolerated by the Party.

At this stage is does not affect our wheat business into China.  But it does make anyone wanting to do business with China very nervous.  There is something like 700kmt already booked for Nov/Dec delivery into Chinese ports with 1.5mmt average yearly demand (ABS).  There is nothing like a cargo getting rejected at port to put a dent in your PnL.

The immediate effect has been a spike in US futures as the US will be banking on the fact that demand will swing to them.  The Chinese have been on a recent buying spree, particularly on US corn, beans and wheat.  Globally, demand for wheat is seen as strong as countries look to be food secure with the threat of COVID 2.0 hanging around.

Hopefully, it is all just a storm in a teacup.  Australia’s photo-sanitary protocols are second to none and I would be sure that bulk handlers here would stand by their practices.  But if China – or any customer – wanted to find a problem, they would.

This is not an import tariff (i.e. barley), and as such doesn’t directly restrict our access into China. It is however a threat and needs to be watched.

Commodity Conversations

The week ahead….

Steady as she goes.  The world is getting more comfortable with production and with record production and carryout, I suspect the market will flatten out from here.

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Click on graph to expand

Click on graph to expand

Data sources: USDA, Reuters, ABS, Mecardo

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