Some analysts aren’t sure there’s much to worry about, considering a recovering hog sector and drought- hit crop production
China’s slumping economy is sending a nervous ripple through grain markets.
It was mentioned in a recent daily newsletter published by the United Kingdom’s AHDB Cereals and Oilseeds Market Intelligence.
Lead analyst Millie Askew noted that China’s central bank recently cut key interest rates for the second time this year.
“This news sparked concerns over China’s economic growth and in turn demand for commodities,” Askew wrote in AHDB’s Grain Market Daily publication.
“With China one of the world’s largest importers of agricultural commodities, a downturn in Chinese demand would weigh on markets. This will be a watch point going forward.”
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The International Monetary Fund recently cut China’s 2022 gross domestic product growth estimate to 3.3 percent, down from 8.1 percent in 2021.
That would be the lowest pace in four decades, excluding the 2020 COVID crisis anomaly.
The IMF said the slowdown is the result of COVID lockdowns and a deepening real estate crisis in the country.
China’s purchases of corn and soybeans help set the tone for grain and oilseed markets.
Nathan Losey, grain analyst with AgResource Company, doesn’t anticipate a big drop in Chinese grain and oilseed demand in 2022-23 despite the slumping economy.
He notes that Chinese hog profits have been very good of late.
Margins dipped into the negatives at the start of the summer of 2021, but by June of 2022 they started to turn the corner and by mid-summer were US$90 to $120 per head.
“As we see the hog industry recover, I suspect that we will also see the soybean crush industry start to recover,” he said.
New crop sales of U.S. soybeans started out on a record pace. They have since slumped a bit in the last couple of weeks but are still at historically high levels.
Barge freight rates are at record high levels for the October/November period, indicating robust export demand for the fall.
“As we get into the new crop harvest, I think we’re going to see a pretty large soybean export program to China,” said Losey.
China has not purchased a lot of U.S. corn so far, but that could be changing as well because of a crippling drought in the Asian country.
More than 260 Chinese weather stations reported their highest ever temperatures during the heat wave, according to an Axios story.
“The extreme heat and drought that has been roasting a vast swath of southern China for at least 70 straight days has no parallel in modern record-keeping in China,” stated the article.
Losey said there are rising concerns about China’s corn crop, which is at about the same stage of development as the U.S. crop. China’s agriculture ministry said the hot weather posed a “serious threat” to fall crops.
China usually imports a fair amount of corn from Ukraine, but production prospects in that country have been slashed by war.
