Trade rejects Chinese import worries


The U.S. Department of Agriculture expects country to reduce corn and wheat purchases by half, but analysts are skeptical

Grain traders are brushing off a U.S. Department of Agriculture report that expects China’s corn and wheat imports to be cut in half in 2021-22.

The USDA expects the country’s corn purchases to drop to 15 million tonnes, down from a record 28 million tonnes this year, according to the USDA’s Foreign Agricultural Service.

The drop is attributed to high commercial inventories heading into the new crop year and curbed Chinese processing demand for the crop.

“Speculators, mills/plants and local government reserves are building up corn stocks over fears of future supply chain disruptions and concerns over weather-related issues that could lower production,” stated the report.

Wheat imports are forecast to be sliced to five million tonnes, down from an estimated 10.5 million tonnes in 2020-21.

The decline is mainly due to a predicted rebound in Chinese corn production, which is expected to increase by 2.8 percent to 268 million tonnes because of higher planted area driven by government policies and strong prices.

“Less wheat will be necessary to augment feed rations going forward as corn prices are anticipated to ease,” said the FAS.

“While importers express strong desire to be able to import more wheat, imports are driven more by policy than the market.”

The FAS is predicting China’s barley imports will be 7.5 million tonnes, an 800,000-tonne drop from this year’s anticipated levels.

Rich Nelson, chief strategist with Allendale Inc., said the trade isn’t buying what the FAS is selling.

In fact, the trade viewed the report as bullish because the FAS increased China’s 2020-21 corn imports to 28 million tonnes from its previous estimate of 24 million tonnes.

He thinks most traders and analysts are disregarding the 2021-22 import forecasts, believing the numbers are far too conservative.

The forecast for 15 million tonnes of corn imports seems particularly preposterous given the recent pace of exports from the United States and other countries and the forecast for growing feedgrain consumption in China.

“How does that make any sense?” said Nelson.

The FAS predicts China’s feed and residual use will increase by 17 million tonnes in 2021-22, a 6.7 percent increase over this year as the country continues rebuilding its hog herd.

“China has a net increase in feed demand for new crop that is set in stone and it can’t be stopped,” said Nelson.

He believes the FAS is intentionally trying to cool down the red hot corn market.

“They’re perhaps showing a very conservative starting point, and in the trade’s mind we’ll see that walked up in the coming months,” he said.

Nelson thinks most analysts are using 20 to 24 million tonnes of Chinese corn imports in their 2021-22 supply and demand balance sheets.

The trade is equally skeptical about the FAS’s Chinese wheat import estimate of five million tonnes.

China is using way more wheat and rice than usual in its feed rations due to sky-high domestic corn prices.

Reuters reports that China recently purchased 500,000 to one million tonnes of new crop French wheat for shipment between July and September.

China appears to be in the market for new crop wheat about one month earlier than it was last year, setting the tone for another strong year of purchases from exporters around the globe.

The Chinese government recently unveiled new guidelines instructing livestock producers to feed less corn and soybean meal to their animals, substituting in more wheat, rice and other competing feedgrains.

Yet the FAS is forecasting flat feed wheat consumption at 40 million tonnes in 2021-22, the same as what is anticipating for this year.

Nelson said it does not make sense that if China is intent on importing less corn that it would also cut back on wheat shipments.

That is especially perplexing considering the FAS is forecasting a three million tonne increase in the industrial use of wheat as China substitutes for high-priced corn in the country’s ethanol plants.