SINGAPORE – The drought hitting northeastern China for the second year may slash the upcoming wheat and corn crop to below the levels seen in 2000, traders say.
But in the face of declining production, China is exporting wheat and corn to try to reduce large stockpiles of old grain.
Some traders now expect China’s wheat crop to shrink below 100 million tonnes instead of recovering. It slumped by nearly 12 million tonnes to 102 million last year because of the worst drought in decades.
In the corn market, some worry the crop might drop below 100 million tonnes, if not to 95 million, after falling to 105 million last year from 128 million the year before.
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The figures compare with estimated annual domestic consumption of 105 to 120 million tonnes for each of the grains.
Traders were not worried about the fate of soybeans, which showed resilience to the drought last year with flat output of around 15 million tonnes, helped by a larger acreage.
“Remember, this is the second serious drought in a row,” said a trader based in Singapore.
“People are talking about less than 100 million for corn and wheat in their first estimates.”
Traders say the production drop would help China reduce its large grains stocks – which some say top 200 million tonnes – before it joins the World Trade Organization and has to dismantle export subsidies and import barriers.
In what is seen as part of government efforts to ease the financial burden of keeping huge grain reserves, China has begun exporting feed wheat while raising wheat imports from the United States.
Traders estimated China sold about 150,000 tonnes of feed wheat mostly to South Korea. Exports this year could reach 300,000 to 400,000 tonnes, although that is still a drop in the ocean compared with the five million tonnes India plans to sell.
Chinese feed wheat is available at prices well below $105 (US) per tonne, f.o.b., compared with Indian wheat at around $120-$122 per tonne, c&f Southeast Asia.
“The Chinese government is trying to push out old stocks as much as possible. Earlier this year, they started a program for feed wheat,” a trader in Beijing said.
“When it first arrived in South Korea, people didn’t like it. But now the flow is smooth. … The first export estimate could be around 300,000 tonnes for this calendar year.”
Traders say the situation has dented China’s interest in corn exports, which already had been hit by low international prices on the back of a huge global surplus.
“I think they (China) want to continue exports, but prices are going to be stiff,” said another trader in Singapore.”Today they don’t want to compete against the cheap U.S. corn.”
Following falls in Chicago futures to new contract lows, prices for U.S. corn in Panama-sized vessels dropped to below $100 per tonne, c&f South Korea, compared with Chinese corn at $102 per tonne, f.o.b. China, at the last tender.
“U.S. corn is too expensive if they come here in small vessels, like 12,500 tonnes. This should create some demand for Chinese corn,” said a trader in Hong Kong.
“But it is very difficult to do more than 200,000 a month.”
China exported more than 10 million tonnes last year. Domestically, corn prices at Chinese warehouses are rising, traders say.
“Right now the drought is very serious, especially in Jilin,” said a trader in Beijing.
“People are worried about production this year. Warehouses are waiting to sell at higher prices.”
