Analysts are debating whether China’s huge 2020-21 corn and wheat purchases are an anomaly.
Dan Basse, president of AgResource Company, is firmly in the camp that they are not a one-off episode.
“It looks like China is going to be a much more regular importer of world corn for many years to come,” he said.
China’s sudden emergence as a major importer of the crop caught the U.S. Department of Agriculture off guard.
The USDA increased China’s 2020-21 import forecast to a record 24 million tonnes in its February World Agricultural Supply and Demand Estimates report, up from prior estimates of 17.5 million tonnes in January and seven million tonnes in October.
Dim Sums, a web blog that claims to be “bringing clarity” to China’s rural economy, said the burning question is whether the Chinese purchases are a temporary boom or the new normal.
“Is corn the new soybeans or could the corn purchases stop as abruptly as they started?” stated the author of the anonymous blog.
“China has a history of frenzied purchases that were presumed to be the tip of the iceberg but turned out to be the edge of a cliff.”
The answer to the question lies in knowing what the imported corn is being used for.
The market has attributed the surge to the surprisingly rapid rebuilding of China’s hog herd, but Dim Sums thinks there are other factors at play.
“There are indications that the imported corn is refilling warehouses as well as pig bellies,” stated the blog’s author.
In April 2020, a rumour circulated in Chinese news media that the government was contemplating importing 20 million tonnes of corn to replenish its depleted reserves after a four-year campaign aimed at reducing the stockpile, said Dim Sums.
Other motivations for the purchases include quelling COVID-19 food security fears, meeting its Phase 1 agreement obligations with the U.S. and taking advantage of low world prices for the commodity.
Dim Sums feels that restocking reserves is a more plausible explanation for the spike in imports than the idea that it is needed to feed the country’s hogs.
“If the sector has really been in recovery for a year, why are hog prices, piglet prices and pork imports still as high as they were a year ago,” said the blog author.
There has also been speculation that large poultry inventories and corn hoarding by processors and traders have contributed to strong demand.
Basse doesn’t think this is simply a restocking exercise.
“If you follow the trail you can see that the corn is not going into government storage,” he said.
Imported corn from the U.S. and Ukraine is being sold to starch and ethanol plants and livestock feed manufacturers.
He believes China is going to be importing 25 to 40 million tonnes of corn annually for many years to come, which means the world is going to need to find another 11 to 13 million acres of the crop.
“We will do this. It will occur in places like Ukraine and Brazil and Argentina and to a lesser extent the United States and a little bit in Canada,” said Basse.
China’s wheat imports have also skyrocketed. The USDA is forecasting 10 million tonnes of imports, the highest level in more than 25 years.
Most of that imported wheat will be used for human consumption markets but some is making its way into the feed market.
The USDA reports that China’s feed wheat use is forecast at a record 30 million tonnes this year, more than 10 million tonnes higher than last year.
High Chinese corn prices have led to record auctions of government reserves of wheat, with more than 12 million tonnes sold in January alone.
Chinese wheat prices have fallen below corn prices for the first time in more than six years.
French wheat has a landed price of US$270 per ton, which is more than $160 per ton cheaper than Chinese corn and $120 per ton less expensive than Chinese wheat.
That vast price spread will continue to encourage wheat imports in the short-term, but the unusual demand scenario won’t persist in the long-term, said the USDA.
Basse does not agree with that assessment. He noted that China lost a World Trade Organization dispute in 2019 and that changed everything.
The WTO agreed with the U.S. and other exporters that China had been mismanaging its tariff rate quota program, which was supposed to allow 9.6 million tonnes of wheat to be imported into the country annually at a one percent duty.
He believes China will start importing that amount annually to avoid having to pay WTO-ordered fines and compensation.
That represents about seven million tonnes of fresh new wheat demand annually for the world’s exporters.