Chinese economy continues to grow, so Canadian export markets should remain strong amid market downturn
China’s troubles aren’t enough to derail the steaming demand train that has carried along grain and meat markets for the past decade, analysts say.
At least not yet.
“This is food. Food is just too important,” said Iowa State University agricultural economist Dermot Hayes, an expert on the Chinese market for pork.
“Even though investors over there have lost a lot of money, the real economy is still growing at five or six percent, and that means that more and more people will be able to afford pork.”
The same applies to soybean and canola imports, said Rich Nelson of Allendale, Inc. Food-related importing will not be derailed by the present state of Chinese economics or markets.
“Whether they have seven percent growth or five percent growth, we’re not changing our estimates (of likely Chinese import demand),” said Nelson.
“There’s not a clear correlation between the Chinese growth rate and its imports of soybeans and canola.”
China’s economic slowdown, which has been occurring for more than a year, and its stock market selloff, which is only a couple of weeks old, have reduced the price of commodities, including oil and copper.
However, agricultural commodities have not been obviously affected in a big way.
“It’s certainly having an effect on general commodities, especially minerals and metals,” said John Duvenaud, editor of the Wild Oats markets newsletter.
“Food, I don’t think so.”
Hayes said China is continuing to see economic growth and urbanization, regardless of the slowdown. That means millions of new consumers are beginning to have the ability to afford meat.
There might be marginally fewer new urban consumers if China’s growth rate cools and less money is in the hands of the wealthier parts of the urban population, but nothing has reversed China’s development.
Most Canadian and U.S. meat plants can’t ship to China because of the ractopamine ban, but a few do and regardless of where China sources its meat, the outlook for Canadian and U.S. exports is good as long as it’s taking it off the world market.
“There’s a pork scarcity over there,” said Hayes.
“We probably won’t see quite as big an increase in prices and similarly we won’t see such a big increase in imports (as many previously expected), but there will still be growth.”
A few analysts are noting the stabilizing factor food can play in a society and the destabilizing factor that increasing food prices can play.
People tend to be more content if they can afford more food, social unrest can ensue if food prices rise and shortages occur. That’s not likely something the Chinese government wants.
“The Chinese government is in a dicey situation,” said Duvenaud.
“The last thing they are going to do is cut back on imports.”