Global Markets: Grains – U.S. Corn, Sorghum Sales to China Bode Well for Exports

Corn pouring out of an auger during harvest. Photo: ©Debra L Ferguson Stock Photography

As of the last week in July, combined U.S. old-crop corn and sorghum commitments (accumulated exports plus outstanding sales) to China stand at 5.6 million tons for delivery in 2019/20, the highest level since 2013/14.

Much sorghum has already been shipped, while most corn waits for shipment. These late-season sales bode well for China’s commitments to the United States following the Phase One agreement.

For the new-crop, corn sales to the world stand at 10.9 million tons, just shy of tripling the level a year ago and well ahead of the pace seen in recent history. For sorghum, the new crop sales stand at 1.2 million tons, the highest level in 5 years.

Strong early season sales do not necessarily lead to greater total exports as numerous variables influence trade dynamics throughout the year. However, large early season sales do give a kickstart to exports in the coming year.

Aside from the Phase One agreement and despite overhanging trade tensions, the pace of new crop sales to China ostensibly reflects China’s pressing needs for competitively priced feedstuffs to help meet growing feed demand and cool down domestic prices.

For China’s feed mills, fewer options for corn substitutes are available after anti-dumping and countervailing duties (AD/CVD) have been imposed on Australian barley. Barring action by China, the AD/CVD on U.S. distillers’ dried grains remains in place for another year and a half.

China does not limit sorghum imports. Corn imports, however, are subject to the tariff-rate quota (TRQ) of 7.2 million tons in a calendar year, and that has been limited by administrative measures in previous years.

Based on the data by China Customs Statistics and the large sales shown in the Export Sales Report, China’s corn imports could reach the TRQ level for the first time since it joined the World Trade Organization in December 2001.

North Africa Projected to Be Top Wheat Importing Region

North Africa is poised to become the world’s leading wheat importing region for the first time in 3 years. Growing demand and reduced production is expected to push imports for the region to a record.

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Egypt, the world’s leading buyer, is projected to import a robust 13.0 million tons in 2020/21, down slightly from 2019/20, which was a record partly due to government stockpiling during the COVID-19 pandemic. Algeria, the world’s fourth largest importer, is forecast to import 7.0 million tons with continued growth in demand and flat production.

Morocco is projected up significantly to a record 6.2 million tons as its crop has been ravaged by drought and the government is allowing duty-free wheat imports through the end of 2020. It is worth noting that Morocco’s imports at the end of 2019/20 were also large in anticipation of tighter new-crop supplies.

Imports for Tunisia and Libya are expected to be nearly unchanged.

Historically, the Middle East and North Africa were the top importing regions, but this dominance waned significantly in the last decade as imports by Southeast Asia and Sub-Sahara Africa rose substantially. In the last few years, the major wheat importing regions have ebbed and flowed in terms of importance depending on market conditions.

For instance, Southeast Asia briefly became the world’s leading import region in 2018/19, but has since lost that position as demand there has flattened with lower feed use roughly offsetting stronger milling demand.

The Middle East was the world’s leading importer in 2019/20 as tightening supplies led to massive purchases for Turkey and Iran. Now, markets have shifted, and North Africa is once again the top importing region.

Mexico Barley Imports Hit Record

Mexico’s trade year 2019/20 (Oct – Sep) barley imports are projected at a historical high of 320,000 tons. European Union exports of barley to Mexico have been particularly strong, and higher unit values indicate that it is likely malting quality.

In the past, the United States has captured about half or more of Mexico’s total import volume, but market intelligence suggests that major Mexican brewers are turning to the European Union for more favorable buying terms. U.S. producers prefer contract farming for malting barley, whereas EU barley can be purchased at auction or via spot contracts.

Research by J.P. Morgan and the Kirin Company3, a large Japanese beverage maker, shows that North American beer consumption grew by 0.1 percent between 2011 and 2016. However, looking at the individual countries paints a different picture.

While beer consumption in the United States was essentially flat and Canada declined, Mexico had a compound annual growth rate of 3.4 percent over the period.

The expansion of beer consumption in Mexico – and consequently production – is supported by its imports of malt as well. Malt is produced through controlled germination of barley grain. Through this process, enzymes within barley are developed and activated, turning its starches into fermentable sugars.

Malt imports have been steadily growing over the last 2 decades. Imports of malt generally exceed those of barley; however, in September 2019, one of the world’s major malting companies, Malteurop, indicated it would open a new malt house adjacent to a large Heineken brewing operation in the state of Chihuahua in 2021.

If barley production in Mexico stays relatively flat as it has for the past several years, expansion of domestic malting capacity could mean greater barley imports in the future.

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