RENO, Nevada Ñ In a city renowned for gambling, Alan Tracy’s presentation was akin to a royal flush.
The president of U.S. Wheat Associates said the world’s most populous nation has emerged from hiding to become the largest importer of milling quality wheat in 2004-05.
Better yet, the future demand from China is staggering.
Tracy could hardly contain his enthusiasm in the speech he delivered to delegates attending the export association’s annual meeting in Reno.
He painted a picture of a new world order in wheat markets that will greatly benefit exporting nations including the United States and Canada.
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According to the U.S. Department of Agriculture, China has already imported nearly six million tonnes of wheat and should reach eight million tonnes by the end of the 2004-05 marketing year.
“That would make them the largest wheat importer in the world,” said Tracy.
While that doesn’t seem out of line for a country that is home to 1.3 billion people, it is a startling turnaround from two years ago when China exported 1.5 million tonnes of the crop.
“That’s a huge, huge, swing,” he said.
By most estimates it is not a one-time splurge related to production problems or the country’s booming economy. It is the beginning of sustained strong demand from that region of the world, which will more than offset production increases from the Black Sea region.
“Just look at the dramatic change in behaviour. Something is happening in China beyond the growth in their economy,” said Tracy.
He said the burgeoning demand has little to do with the gradual incline in wheat consumption and everything to do with China’s plummeting wheat stocks.
Around the time of the Tiananmen Square uprising in 1989, the country adopted an “uneconomic policy” of stockpiling abnormally high volumes of grain.
Ten years later it retreated from that philosophy when the U.S. endorsed China’s bid to enter the World Trade Organization.
That change in mindset has led to a dramatic decline in wheat stocks, which will end the 2004-05 crop year at an estimated 38.3 million tonnes, down sharply from a high of 102.9 million tonnes in 1999-2000.
The numbers are rough estimates provided by the USDA because China doesn’t divulge its grain reserves.
However, there is corroborating evidence that the country’s stocks are low. Domestic wheat prices began to rise last spring, demonstrating eagerness by the government to have growers expand pro-duction beyond 90 million tonnes.
That will be a tough sell because stocks of rice and corn, two high priority crops, have also been depleted over the last five years and the country is importing one-quarter of the world trade in soybeans.
“It doesn’t appear to me they will be shifting from other crops into wheat,” said Tracy.
If domestic production stays static and consumption continues to rise, spurred on by China’s 9.5 percent annual growth in gross domestic product, the country could easily be importing 17 million tonnes of wheat or 17 percent of the world trade in the commodity within the next year or two, he said.
That represents a huge opportunity for Canadian growers. The U.S. leads year-to-date exports to China at 2.42 million tonnes, followed closely by Canada at 1.87 million tonnes.
But in one key respect Canada has a distinct competitive advantage over its North American counterpart, said Baoquig Zhao, spokesperson for China’s embassy in Washington, D.C.
“Sometimes we import wheat from the U.S. and we find disease,” he told delegates attending the Wheat Export Trade Education Committee annual meeting.
“To be honest with you, Canadian wheat is a little bit cleaner than U.S. wheat.”
Canada is already off to a good start for the 2005-06 crop year.
Earlier this year the Canadian Wheat Board signed a memorandum of agreement with the China National Cereals, Oil and Foodstuffs Import and Export Corp. for the sale of one million tonnes of milling wheat for next year. The deal is worth $250 million.
