Is Chinese wheat demand a one-off?


The Asian country says it has rebuilt its grain reserves, but others believe it will be a significant buyer for years to come

China claims it has successfully rebuilt its grain reserves to a comfortable level.

The National Food and Strategic Reserves Administration announced it has a 650 million tonne stockpile, according to a story on the World Grain website.

That is enough to meet China’s domestic needs for wheat and cereal grains for more than one year.

“Coping with the coronavirus, our capability to ensure grain safety stood the test,” the deputy head of the administration said in an April 2 news briefing, according to the World Grain story.

“China has the basis, conditions, confidence and capability to ensure the nation’s grain security.”

The U.S. Department of Agriculture is forecasting a total of 464 million tonnes of wheat, coarse grains and rice ending stocks in China in 2020-21.

That is a far cry from China’s 650 million tonne number. It is unclear what crops are included in the Chinese government’s estimate.

One thing that is certain is that China is poised to import copious amounts of cereal grains in 2020-21.

Soybeans and corn top the list, but the USDA is forecasting China will also import an estimated 10.5 million tonnes of wheat.

That would be the country’s largest wheat import program since 1995 and nearly double last year’s volumes.

The burning question is, will China’s grain purchases remain at inflated levels in 2021-22, or was this year an anomaly, a year in which China was rebuilding all of its grain stocks for food security reasons?

The USDA believes China’s buying spree will continue. It provided a 2021 export outlook in the recently published 2020 United States Agricultural Export Yearbook.

“Strong demand from China is expected to continue to drive U.S corn and soybean exports,” it stated.

It is also anticipating continued “strong demand” for wheat.

China’s purchases of U.S. agricultural products sparked a sustained global price rally that is still in play for many commodities.

The country bought US$26.4 billion of U.S. agricultural goods in 2020, nearly double the previous year’s purchases and well above the previous five-year average of $18.1 billion.

The USDA expects China to remain the top destination for U.S. agricultural goods in 2021 as the post-African swine fever recovery of the country’s swine herd consumes large volumes of feedgrains.

“China’s continued implementation of the U.S.-China Phase One Agreement should also contribute to strong overall demand for U.S. goods throughout the year,” said the USDA.

MarketsFarm analyst Bruce Burnett also anticipates continued robust demand out of China for crops from all over the world, despite reports of bolstered grain reserves.

He said it is reasonable to assume the country’s reserves have grown based on how much corn, wheat, barley and other grains China is importing in 2020-21.

However, he is not convinced it has reached the lofty levels being reported by the National Food and Strategic Reserves Administration.

“It is a possibility that those reserves could have been completely replenished, but I’d like to see their internal markets start to reflect that price-wise before I make a judgment,” said Burnett.

Grain prices have fallen in China. Nearby corn futures are down 12 percent from their January highs.

“They have come off, but they haven’t cratered by any means,” he said.

Crop prices in China are still well above values in other markets around the world, and there has been no sharp drop-off in demand, so he remains unconvinced that China’s reserves have been fully restored.