Global Markets: Grains – Chinese Imports to Rise Higher

©Debra L Ferguson Stock Photography

China’s combined grain imports are forecast at a record level in 2020/21 driven by demand for feedstuffs. The upsurge has partially stimulated grain trade and elevated prices in the world market.

China’s imports of coarse grains for 2020/21 (Oct-Sep) are forecast higher this month, mirroring the level seen in 2014/15 when imports spiked due to strong prices in the domestic market. The rise for 2020/21 is supported by strong recovery in the swine sector, which has been driving feed demand higher. Corn prices in the domestic market have rallied since February, and in October, the national price averaged around $362 per ton, the highest since August 2015.

Greater imports are primarily driven by corn. The surge in corn imports is partly based on China Customs Statistics and U.S. Grain Inspections data through early November, which indicate that imports will far exceed the tariff-rate quota (TRQ) level of 7.2 million tons in calendar year 2020. There have been no public statements that would indicate that additional quota has been allocated by the National Development Reform Commission, the authority governing the TRQs.

China wheat imports of 8.0 million tons in 2020/21 are forecast at their highest level in 25 years as State Trading Enterprises are helping bolster domestic stocks and taking advantage of competitively priced foreign supplies. The price spread between the average domestic price and import price was approximately $70 per ton in September, accounting for over one-fifth of the total domestic price.

China is taking advantage of this arbitrage opportunity to help replace and rebuild aging government reserves. Moreover, the government’s domestic wheat procurements were down more than 13.5 million tons compared to last year, further incentivizing higher imports.

The demand for feed-quality wheat has surged because of significant inflation in the domestic corn market. The differential between the national average prices for wheat and corn was below $5 per ton in October 2020, compared with almost $60 last year. The narrow price difference between corn and wheat (new-crop price) is driving significant auction sales of old-crop domestic wheat (at parity or lower than new-crop corn in some instances). In October 2020, domestic auctions sold more than 7.1 million tons compared with the previous year.

In contrast, China rice imports are forecast lower compared to last year. The challenges that exist in the feed market have not been as concerning for China in the food market. Food use, which accounts for the vast majority of use, is estimated to be lower in 2020/21 as the government has implemented policies to reduce food waste.

Although feed use for rice is typically minimal, this year more rice is being used for feed as the government draws down the massive old crop supplies in sales at very low prices. Notably, the China export forecast is trimmed, with more of the old-crop supplies from auctions expected to meet the strong domestic feed demand rather than expanding to additional foreign markets.

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