A sale of 50,000 tonnes of corn is considered a run of the mill transaction unless it is China doing the buying.
Last week, a Chinese corn processor said it had bought 50,000 tonnes of U.S. corn, marking that country’s first significant corn purchase in several years.
Just a few weeks ago I reported a developing turnaround for China, the world’s second or third largest corn exporter for the past decade.
There was speculation that China’s corn demand would outstrip its production, meaning exports would decline and imports rise so that in the next five to 10 years it would become a net corn importer. Clearly, this would support corn and wheat prices.
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Now the first imports have begun, although they seem like test transactions to see how the government would respond to imports of genetically modified corn. So far, no roadblocks have been put up.
The company importing the corn said the price spread between Chinese and American corn was not enough to contemplate further imports for now. But the deal caught grain traders’ attention.
It also caused them to take note of a small but steady stream of news about drought in western and northern parts of China that we first noted on May 4. The United Nations Food and Agriculture Organization drew attention to the problem in a May 12 report and the influential Wall Street Journal reported on it May 26.
You can see satellite imagery of the China drought at
earthobservatory.nasa.gov. Click on “natural hazards” and then “crops and drought.”
The drought is mainly outside the major crop producing regions and so far the expectation for the 2006 wheat and corn crops is for a good harvest, particularly after some recent late-season rain. But traders will now be more attuned to the Chinese crop and any news of spreading drought will add heat to the already hot grains futures markets, driven by drought in the U.S. winter wheat belt and by soaring corn demand for ethanol production.
Production problems are also developing in other areas that could also add price support, this time to canola.
Parts of eastern Australia are again slipping into drought. If it does not rain in the next week or so, expectations are that canola seedings will drop. The outlook is for drier than normal conditions to continue in eastern Australia. If drought settles in, it could also reduce the wheat crop, now forecast at an average 22 million tonnes.
The problem in France is too much rain. French farmers seeded seven percent more canola acres, but analysts now think that surplus moisture will lower yields and the crop will be about the same size as last year’s 4.42 million tonnes.
