Chinese wheat stocks have been falling for four years, yet the country is not importing much wheat and its farmers face poor wheat prices in their domestic market.
It doesn’t seem to make sense, but two experts who spoke at the Canadian Wheat Board’s Grain World conference said China’s wheat prices and import demand should soon ignite.
Continued low prices have been reducing Chinese farmers’ stores of grain and once those are depleted, domestic prices and demand for imports will return.
“Everyone has been wondering what is keeping the price low,” said Funing Zhong, the dean of economics and trade at Nanjing Agricultural University in China.
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“People think it must be some release from on-farm stocks, but that’s just speculation.”
Chinese grain stock numbers are always suspect, with world markets unsure how seriously to treat them. United States Department of Agriculture estimates for Chinese grain stocks are sometimes altered by large amounts, which unsettles grain markets.
The Chinese government keeps a strategic reserve of wheat and other grains in case of drought and famine and does not reveal how much it is storing.
The quasi-government grain agencies that buy and distribute grain in the domestic market do not keep their stock numbers secret, but they are difficult to compile accurately, Zhong said.
The wild card in the Chinese stocks game is the huge amount of grain kept in storage by farmers. Most Canadian farmers market most of their crops during the year after harvest, but Chinese farmers are more willing to put grain into long-term storage.
“Farms keep up to two years production at home,” said Zhong.
“No one has accurate figures on how much altogether.”
Chinese farmers have suffered for a number of years with low domestic grain prices, which has caused them to hang on to their crops in the hopes of better prices. But the low prices have held for so long that now many have been selling their crops for whatever they can get.
“They’re liquidating their stocks in the face of long run low prices,” said Scott Rozelle, an agricultural economist with the University of California.
“It wasn’t worth it to hold it for so long.”
Zhong said the low prices have been a surprise to all in the Chinese grain trade, since the low commercial stocks numbers should have triggered higher prices.
“The stocks are not large enough to keep the prices low,” said Zhong.
He thinks the biggest factor has been farmers selling their stocks, but that itself was triggered by unexpectedly weak consumer demand.
Zhong speculates even though China is getting richer as a country, the buying power of its masses isn’t uniformly growing.
“The average income in China is continuing to increase, but the gap is widening between the high income people and the low income people,” said Zhong.
Wealthy people are already eating all the grains and oilseeds they want, Zhong said.
Poor people may be finding it harder to afford to buy as much as they once did.
Zhong also thinks Chinese farmers and farm labourers do much less physical work than they did in the past, so they may eat less.
The Chinese population is also aging, and old people eat less than young ones, Zhong said.
