China Changing Fundamental Grain Outlook
Regardless of the short-term trade tension between China and the U.S., many observers feel Chinese demand has fundamentally changed the outlook for many grains and oilseed markets over the next decade.
Falling Grain Stocks
China’s need for imports is a function of falling Chinese grain stocks as well as a rising middle class that is demanding improved nutrition at a reasonable cost, Dan Basse, the president of Ag Resources in Chicago, told a global grain conference in Geneva, Switzerland last week.
The Chinese government zealously guards statistics on grain stocks and supply-demand balances, but analysts feel they are getting an increasingly better handle on those numbers, despite Chinese secrecy.
USDA is estimating that China’s annual production of wheat, rice and coarse grains has dropped from 392 million tonnes in 1998-99 to just 326 million in 2003-04. And with consumption of these same commodities pegged at 377 million tonnes this year, the country will need to draw down its stocks to meet its needs.
Since 2000-01, China’s total ending stocks of wheat, rice and coarse grains have been dwindling, according to data from USDA.
Prices on the Rise
Regardless of the accuracy of analysts’ estimates, the story of Chinese grain supplies is being told in the prices being paid by the Chinese population. Wheat prices have climbed as much as 32 percent since the summer, while corn prices have doubled and rice prices are up by 13 percent. Over the same period, prices for oils and fats prices have increased about 17 percent.
The recent leap in food prices stands in sharp contrast to the relatively stable prices for rice and flour products over the past decade. As a result, the increasingly affluent Chinese middle class is demanding the government stop the escalation of food costs.
Most observers agree China will become a net importer of grain in the future, but the timing is in dispute. American and European analysts are looking for imports of corn and wheat to appear in the 2003-04 crop year. However, Chinese analysts don’t see the same sense of urgency.
Steady Soybean Consumption
Despite the current trade row between the U.S. and China, analysts generally feel China will continue to book U.S. soybeans, though at a slower pace than in October and November.
Also slowing demand for imported soybeans is the arrival of the Chinese soybean crop, which is grown in Northeastern China and is currently being shipped to the crushers in the south.
China’s crushers need 2.4 to 2.5 million tonnes of soybeans a month, which suggests there will be more sales of U.S. soybeans before the South American crop arrives in late March. In the spring, China is expected to start buying South American soybeans, which are traditionally US$10.00/tonne cheaper than American supplies.
Hungry for Canola
China has already booked 300,000 tonnes of Canadian canola and may be looking for another 300,000 tonnes this winter. Although this is a respectable amount for China to book, it doesn’t come close to the 1.2 million tonnes China has taken on occasion in the past. In addition, China has taken over 100,000 tonnes of canola oil.
BOLd[Lower Chinese Corn Exports Forecast]
There’s little doubt that China’s corn exports will be curtailed in 2003-04 compared to the previous year due to falling stocks. Some are speculating that the final number could come in well below USDA’s latest forecast for this year of 334.6 million bushels (8.5 million tonnes).
While exports will definitely slow down, trade views are mixed on whether China will need to import corn. A Chinese trader with the China National Cereals Oils and Foodstuffs Import & Export Corp said last Friday he felt the withdrawing of China from the corn export market reflected the withdrawal of subsidies exporters received from the government. He indicated that China was expected to shift subsidies paid to exporters for storing corn to direct support to grain producers. This would encourage domestic to meet domestic demand.
Huang also said he felt the shift in subsidies would keep China from having to import any sizable quantities of corn until 2008. He added that by 2013, China may be importing as much as 30 million tonnes of corn annually.
No one in the grain and oilseed business can deny that China is a market mover of great importance. Mere rumours of activity are enough to send futures spiking higher or spiralling lower. Many observers now feel that China will soon become a more active day-to-day player in the global grain markets in order to meet the needs of its population. And that has Dan Basse predicting that global grain markets will return to the volatile situation in the 1980s when China was a big buyer of global grain and oilseed crops.