China often seems to be the focus of agricultural markets, but analysts think Chinese demand sometimes looms too large in the eyes of market watchers.
“I don’t know why there’s that much attention to China when they’re not that big a part of the (export pork) market,” said Ron Plain of the University of Missouri.
In April, for example, “1.3 percent of the pork we produced in this country went to China.”
However, Chinese demand always seems a dominant issue, even when analysts can’t agree on how to read it.
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For example, corn markets were moved July 7 by confirmed corn buying in China, even though it was expected by most analysts.
“U. S. corn futures finish stronger on expectations for continued demand from China,” said the CME Group’s daily wrap-up newsletter, following U.S. Department of Agriculture numbers reporting 540,000 tonnes of U.S. corn sold to China that week, another 300,000 tonnes to an “unknown destination” that might have been China and sales the previous week of 1.1 million tonnes to another “unknown destination” that might have been China.
While the markets moved higher on the news, analyst Rich Nelson of Allendale, Inc. said he thought the news was mildly bearish rather than bullish.
“The China sales, actually, were expected,” said Nelson.
“The trade was hoping for as much as a million tonnes more than what was reported today.”
However, he said any talk of China tends to rile up the markets because it can be both a big buyer and a capricious buyer.
“There is a wide discrepancy between what they have bought and also how much they will buy in the future,” said Nelson.
“Some people are suggesting China will not just buy five million tonnes (of new crop corn), but possibly eight to 10 million tonnes. From what they’ve bought now to those levels is a huge range.”
China’s pork demand also tends to grab traders’ attention because it is a wild card and can suddenly change the supply and demand balance sheet.
“Even though it’s not that big (a buyer of pork), it tends to change,” said Plain.
“China is more volatile than the other markets.”
Analysts say that volatility has increased as China’s economic power has grown.
“They are opportunity buyers,” said Nelson.
The fact that China was willing to step in and buy U.S. corn after the corn market had gone into freefall reveals China’s greatest asset to farmers, he said. It will start buying when prices are falling, putting a solid floor under the market.
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