China imports wheat as domestic prices rise

The U.S. Department of Agriculture expects China will import eight million tonnes of wheat in 2020-21, and some analysts think six to 10 million tonnes of annual imports may be the new normal for the country.  | File photo

General market conditions, WTO rulings and a trade agreement with the U.S. are said to be behind the higher purchases

China is buying more wheat than it has in 25 years, according to the U.S. Department of Agriculture.

The USDA forecasts the Asian giant will import eight million tonnes of wheat in 2020-21, making it the world’s third-largest buyer behind Egypt and Indonesia.

This year’s imports will be double the previous five-year average of four million tonnes.

“State-trading enterprises are helping bolster domestic stocks and taking advantage of competitively priced foreign supplies,” the USDA said in its recent Grain: World Markets and Trade report.

Imported wheat was about US$70 per ton ($133 per tonne) cheaper than China’s average domestic price in September.

“China is taking advantage of this arbitrage opportunity to help replace and rebuild aging government reserves,” stated the USDA.

The government has also reduced purchases from its own farmers by 13.5 million tonnes compared to last year, further necessitating imports.

China’s livestock sector is consuming a lot of feed wheat because the national average price for new crop wheat was only $5 per ton higher than corn in October versus almost $60 last year.

There have been significant government auction sales of old-crop wheat, which is at parity or sometimes even lower than corn prices. In October, the government auctioned off 6.4 million tonnes more wheat than the previous October, according to the USDA.

Jeffrey McPike, manager of global marketing with Pelz Global Commodities, the world’s largest physical cash grain brokerage, believes six to 10 million tonnes of annual imports may be the new normal for China.

He doesn’t think the country’s wheat inventories are as bloated as the government lets on.

McPike said “old guys” like him in the grain industry have been waiting 20 years for China to finally emerge as a major importer of cereal grains like corn and wheat and that is finally starting to materialize.

“It’s about time,” he said.

The U.S. recently won two World Trade Organization disputes regarding China’s wheat import policies.

China has agreed to work toward filling its 9.6 million tonne tariff rate quota (TRQ) for wheat imports.

Steve Mercer, spokesperson for U.S. Wheat Associates, said U.S. wheat exports to China are two million tonnes so far this year, outpacing the long-term average.

He said China is filling more of its TRQ this year than it has since joining the WTO.

Mercer suspects that is due in part to the WTO rulings. The other two possible factors are the Phase 1 trade agreement with the U.S. and general market conditions.

He is not sure what this means for China’s import volumes in years to come.

“(It is) very hard to speculate or even guess what the future will hold given the current political climate,” he said in an email.

China’s increased wheat purchases have helped bolster world prices, which in turn is leading to increased winter wheat plantings in some regions of the world.

McPike has heard that Russian farmers planted about 47 million acres of the crop, a six percent increase over last year.

Strategie Grains forecasts a nine percent increase in the European Union.

McPike believes U.S. acres will be about flat.

He said the Russian and U.S. crops are heading into dormancy in less than ideal shape. How those crops emerge from dormancy will depend on winter temperatures and precipitation.

The Global Agricultural Monitoring Crop Monitor reports that conditions in the European Union are also mixed as first wet and then dry conditions hampered sowing in France and eastern Europe.

“Everything is not good. There is potential problems,” said McPike.

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