In a story that seemed a bit hyped up, Bloomberg on April 1 reported that lingering La Nina dryness in the U.S. southern plains and in China could push wheat prices higher.
The forecast for stronger wheat prices was understandable, what with the spin-off support from corn and the growing worries about the dryness in the U.S. hard red winter wheat area.
Indeed, weekend temperatures in Texas, Oklahoma and Kansas were around 25-35 C with strong dry winds, sapping yield potential.
However, the emphasis on China in the Bloomberg story was surprising.
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True, it is getting dry again in northern China, especially in corn-soybean areas. But Chinese officials have repeatedly said that with about three-quarters of the crop irrigated and emergency watering for the rest, as well as cloud seeding to squeeze rain from any clouds that appear, there will be no shortage of wheat.
But the story serves to illustrate how closely the market watches China.
For a couple of weeks, the corn market was abuzz over rumours of Chinese sales. Official data released the same day as the big planting and stocks reports appeared to confirm the talk, helping corn prices to soar.
China already buys almost 60 percent of the soybeans traded in the world. It buys almost 20 percent of the canola traded.
In the mid 1990s it abandoned meeting is own oilseed needs but set a goal to be 95 percent self sufficient in grain: rice, wheat and corn.
China’s government has invested in developing new agricultural areas and irrigation infrastructure to maintain the population’s rising food demand. It made big spending increases in these areas this winter.
But it might not be able to keep up. This year’s corn imports are the first in 15 years. It is expected to buy 1.5 million in the current crop year and 2.5 million tonnes in 2011-12, according to the USDA agricultural attaché in Beijing. That is in addition to millions of tonnes of dried distillers grain.
Maintaining 95 percent self-sufficiency is not easy.
Northern China is arid. Aquifers are rapidly falling and environmentalists worry that melting glaciers in the Himalayas threaten China’s big river systems. Also, expanding cities are gobbling up prime agricultural land.
In a surprisingly candid essay published in December, Chen Xiwen, head of the state council office on rural policy, said it is “inevitable that the rate of self-sufficiency will decline,” as demand from an increasingly affluent population increases.
He made similar comments at the end of March, noting that increased imports might be preferable to the environmental costs of boosting domestic production, such as depleted aquifers, erosion and overuse of fertilizer.
So it appears China is tentatively moving toward increased grain imports. Indeed, Rabobank has argued that China could maintain 95 percent self-sufficiency in total rice, wheat and corn and still import 25 million tonnes of corn per year by 2015.
Global corn trade would have to soar 28 percent in just a few years to accommodate this new demand.
A lot of farmland around the world is already tied up growing oilseeds to meet Chinese demand, so corn price s will have to remain strong to attract new land to grow corn.
