The AUD is stronger against most of the major currencies this morning, closing at the session high against the greenback. This is not great for the conversion of futures and cash values back to AUD per tonne this morning. Take nearby Chicago SRWW futures for example. The move in the AUD will counter a +AUD$7.11 / tonne move in futures by roughly -AUD$4.64 /tonne.
When taking the move in the AUD into account against cash values for US wheat out of the Pacific Northwest the jump in the AUD turns positive closes in USD / tonne into small reductions in AUD / tonne equivalent. A worse result than converting US futures.
All the major punters were tending to talk about a softer Chinese market having continued negative influence on the AUD in coming months. I guess the question we really need to ask ourselves is will US tariffs on Chinese ag imports course China a problem or the US a problem. I’m thinking the later.
Looking at the case of the recent import tariff placed by China on Aussie barley, it was evident that throughout the implementation of the tariff that China were indeed buying feed barley at a much higher value than they could have been paying for Australian barley, but Aussie values did also fall.
When a similar experienced is forced upon the US producer, I tend to think it will play out much worse for them than it did for Aussie barley growers due to the fact that S.America and Australia is producing more than enough corn, soybeans and to a lesser extent sorghum, to counter US supply into China. In the meantime the US is also penalising it’s alternative importers to the north and the south. The winner of all this may just turn out to be the SE Asian consumer, not the US farmer. Australia may see and increase in sorghum sales to China but I’ll believe this when I see it. Over the last 6 months the Chinese government has been telling Chinese feed manufacturers to use domestic product as opposed to imported product when possible. This had resulted in a sharp drop off in export demand to China for sorghum. This year the US has 1.23mt of accumulated export sorghum sales to China compared to 3.25mt last year.
Overnight there were slight increases in US FOB sorghum values, but the AUD turned these into comparable losses of AUD$4.00 to AUD$5.00 / tonne.