When will China ride to the rescue?
That question is facing grain and oilseed markets at the beginning of
2002, much as it has for the past few years.
Without substantial Chinese purchases, the markets will likely continue
to wallow in the doldrums, with little movement or hope for higher
prices.
“The world continues to look at China,” said Canadian Wheat Board grain
price analyst Lawrence Klusa in late December.
“They’re expected to be the major player and everyone’s expecting them
Read Also
China’s grain imports have slumped big-time
China purchased just over 20 million tonnes of wheat, corn, barley and sorghum last year, that is well below the 60 million tonnes purchased in 2021-22.
to come in.”
But no one’s betting heavily yet on a quick Chinese entry. The huge
country has raised expectations and dashed them in the recent past.
Until it’s clear China is really back in the market, buyers and sellers
are going to be cautious about bidding up prices.
“If you take China out of the equation, markets look to continue
sideways and may even be a little bearish,” said Klusa.
Wheat and barley prices aren’t showing much movement these days. In the
CWB’s Dec. 20 Pool Return Outlook, wheat prices varied between $3 up
and $2 down since the last PRO, an insignificant change.
Durum ranged from $2 up to $2 down. The feed barley outlook is
unchanged, while two-row malting barley dropped by $3 per tonne and
six-row fell $2 per tonne.
Klusa said grain stocks in many major exporting nations are building,
which will weaken upward price pressure. The antidote to these bigger
stocks will likely be Chinese supplies, which most analysts believe
have been shrinking for two years and will continue to diminish. That
makes overall world stocks down from last year.
But determining exactly how much grain China is holding is not easy.
Earlier in 2001, the United States Department of Agriculture shocked
markets by announcing huge revisions to its estimate of Chinese stocks,
moving them sharply upward and backdating increases for years previous.
Most analysts are confident Chinese stocks are shrinking, but by how
much is just guesswork.
“No one knows what they have for stocks,” Klusa said. “But they have
not had bumper crops, so we expect the carryouts are down.”
While most markets are pricing grains on the assumption that the
Chinese have not decided to re-enter the world market, they are quick
to react to signs that the situation is changing.
Just before Christmas, Chicago wheat futures surged briefly when
rumours began to circulate that U.S. wheat had been sold to China. When
that sale was not confirmed, they slipped back again. The same has
happened in corn and canola markets.
Klusa said the main reason for this is that when China finally does
buy, it will buy big.
“If they come in, you’d expect they’d buy a few million tonnes at a
minimum,” said Klusa.
The recent liveliness in wheat markets may be more than an ephemeral
surge, said a recent George Morris Centre commentary.
“In Chicago wheat futures may be starting to gain increased upward
momentum on improving demand news,” said the commentary by the
independent Canadian agricultural think-tank.
“This has added momentum and fundamental backing to what may finally be
the demand-led breakout in wheat (that) the trade has been waiting for
for years.”
The centre also sees good future potential for malting barley because
of China.
“While China is not typically known to be a high priced or high quality
buyer, theirs is a huge market that could eat into supplies to the
point prices are affected over the longer term.
“The CWB has been paying especially close attention in recent years to
the specifications required by the Chinese malting industry, suggesting
they will be well-poised to take advantage of increased sales
opportunities,” said the commentary.
Klusa said farmers will benefit when China comes to the market, but
shouldn’t bank on it happening soon.
“Maybe in a year they’ll be in for significantly more.”
