Even without buying of lot of Canadian grain, China is having a significant impact on Canadian farmers’ incomes this year.
Its voracious demand for soybeans is helping fuel the oilseed price rise, and its demand for raw materials is driving up ocean freight rates.
Also, China is a factor in the weaker American dollar.
China’s economy grew by 9.1 percent in the third quarter, far faster than forecast. Some economists think the official estimate misses a lot of activity and the real growth is closer to 11 percent. That’s about three times what is considered a good growth rate in North America and Europe.
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China is sucking in raw materials – iron ore, steel, coal and aluminum – at a torrid pace. This has boosted the demand for ships and caused ocean freight rates to double in just a few months.
This makes it more costly for all importers to buy grain and oilseeds. For example, it is estimated high ocean freight costs have added $20 per tonne to the cost of getting canola from Vancouver to Japan.
On the other hand, China’s demand for soybeans is helping drive up oilseed prices.
China imported two million tonnes of soybeans per month through the summer. An indication of the importance of those imports is the fact that China’s vegetable oil prices surged by one third and meal by one quarter last week. That’s because imports were squeezed by new rules requiring permits to import genetically altered grain. The regulations were partly designed to force users to buy soybeans from Chinese farmers instead of importing.
But soaring consumer costs have analysts speculating that China’s quarantine bureau, which is in charge of issuing soybean import certificates, will be pressured to speed up the process and allow in more foreign soybeans.
On the currency front, since 1994 China has linked its yuan to the U.S. dollar at a constant exchange rate. Given China’s growth since then, many analysts believe the yuan should have appreciated, but it remains low, encouraging growth in its export-oriented manufacturing sector.
Part of the reason why the U.S. has a huge current accounts deficit is that America buys far more from China than it sells to it. This large current accounts deficit is helping to pressure the American buck lower.
This is helping the Canadian dollar rise, reducing farmgate prices for Canadian producers.
