Early stockpiling may soon lead to weak demand for grains and oilseeds: report

Rabobank worries that the current wave of demand for grains and oilseeds will subside once importing countries reach a comfortable level of stocks.

“There is a little bit of concern,” said Stephen Nicholson, senior grains and oilseeds researcher at RaboResearch.

That is one of seven long-term challenges the company has identified in its report, The Grain and Oilseed Sector in a Post-COVID-19 World.

The global pandemic has been a boon for the grains and oilseeds sector with countries like China stockpiling crops for fear of another COVID-induced trade disruption.

“The general view is that in at least the short to medium term we’re going to see countries building inventories to make sure they have corn to feed animals, wheat to make flour and soybeans to have oil,” said Nicholson.

But there will come a time when countries start to feel comfortable with their supplies and that could lead to a period of reduced consumption.

“Definitely we believe at some point we will see a bit of a back-off of that demand because people have sufficient stocks in place,” he said.

“It does work against you a little bit in the longer term.”

Nicholson said soybeans have been the main beneficiary of the recent stockpiling. China realizes that the United States and Brazil are basically the only two suppliers of the crop and there is a risk that one or both countries could have a wreck.

China is more comfortable with corn and soybean supplies because there are many more exporters of those two crops, especially wheat. And global wheat supplies are ample.

Chris Dekker, president of the Saskatchewan Trade and Export Partnership, raised a similar concern a few months back.

He said the province’s agricultural exports have been booming during COVID but he too wonders what happens when the stockpiling stops.

“If they’re using that supply we should be fine,” said Dekker.

“If they’re storing or hoarding there could be some minor impacts in the next few months.”

But a couple of Canadian grain industry analysts are not overly concerned about the potential for slumping demand.

Neil Townsend, chief market analyst with FarmLink Marketing Solutions, said China’s booming demand for a wide variety crops is not just about COVID.

“Something is going on in China,” he said. “They do not have the stocks that they claim they have.”

He wonders if the extensive summer flooding in southern and central China caused more crop damage than the government is letting on.

For that reason he isn’t too worried about mounds of grain piling up in China.

“You don’t get any sense from people on the ground there that it’s a stockpiling situation,” said Townsend. “Stuff is arriving and it is being used.”

MarketsFarm analyst Bruce Burnett agrees. He said China’s economy is rapidly recovering from COVID and that is spurring demand. So is the unexpectedly rapid rebound from African Swine Fever in China’s hog sector.

He also sees genuine canola demand emanating from the European Union’s biodiesel sector due to poor EU rapeseed production. Again, that canola is not being stored. It is being crushed and consumed.

Pulse crops are flying out the door to places like India and Turkey due to rising global consumption of protein meal and as a means to control food price inflation.

“If you’re trying to curb food inflation you generally import it and push it into the local market very quickly,” said Burnett.

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