Now that the sleeping giant is awake, there are growing demands on China to allow its currency to appreciate, which some analysts feel will boost grain exports to the world’s most populated nation.
With its economy posting a 9.1 percent growth rate in 2004, China is outpacing many developed nations by a wide margin.
That has led to calls from Chinese importers, international exporters and western governments for the country to discontinue the practice of pegging its currency to the U.S. dollar, allowing it to appreciate on a floating basis.
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For the last decade the yuan has been fixed near 8.3 per dollar, keeping the currency artificially cheap for a booming economy, say financial analysts.
If the yuan was allowed to appreciate, China would have more buying power, spurring higher imports by a country that has become a voracious consumer of raw commodities.
One American grain analyst thinks such a move would spark an additional 1.5 million tonnes per year in U.S. soybean sales.
For a variety of reasons canola market analysts don’t share that rosy outlook.
While China has occasionally bought huge amounts of canola, such as in 2000-01 when it gathered 2.4 million tonnes of seed from all over the world, it is generally shifting away from the commodity.
“They have mostly switched to importing palm oil, soy oil and soybeans,” said Chris Beckman, oilseed analyst with Agriculture Canada.
One of the main drawbacks with canola is that Chinese crushers aren’t getting full value for the byproduct. In most regions of the world canola meal sells for 65-70 percent of soy meal, but in China it is worth 50 percent and is mixed with heavily discounted local rapeseed.
Another constraint is that canola is a premium-priced product boasting health benefits, while China is a cost-conscious market that is primarily searching for calories.
On top of the canola-specific problems there are other logistical challenges involved in generating a surge in any kind of oilseed exports.
“They would still have some constraints through their ports and through their crushing plants,” said Beckman.
As far as he knows there is no unfilled oilseed demand to speak of. The Chinese are already importing record volumes of soybeans.
However, if China allows the yuan to rise, there might be an opportunity for Canadian growers of wheat and barley, said Canadian Wheat Board spokesperson Louise Waldman.
“The general view seems to be that the yuan will be increasing in value,” she said.
“What that means is that it will give China more purchasing power. We think that this certainly has the potential to be positive for the wheat board.”
China has been a consistent top-five buyer of Canadian wheat and malting barley. In 2003-04, it was the biggest foreign customer for CWB wheat, purchasing slightly more than two million tonnes of the cereal crop. So it bodes well for Canada if Chinese importers get more buying clout out of the yuan.
And as Chinese citizens become more affluent, consumption will shift to higher protein food sources.
“The old adage is from rice to wheat to meat,” said Waldman.
That transition in eating patterns will push domestic grain production out of crops like wheat and into corn, soybeans and other livestock feed ingredients.
“You have the shrinking production coupled with increasing consumption, which is positive for a (wheat) exporting country like us,” said Waldman.
