CUSTOMS data released last week reveals that China’s insatiable demand for grain continued unabated in October. This was led primarily by demand from the country’s rapidly rebounding pork sector, which was decimated by African Swine Fever in late 2018 and through 2019.
China imported a staggering 1.14 million tonnes (Mt) of corn in the first month of the fourth quarter, the second-highest level on record. This was quite a dramatic increase from next to nothing in October last year, and was the third consecutive month above the 1Mt level.
It pushes the country’s total corn imports for 2020 to an impressive 7.82Mt, almost double the previous year, and there is still two months to go. That also takes China’s corn imports for the year past the official tariff rate quota (TRQ) of 7.2Mt for the first time, which was one of the requirements under the Phase 1 trade deal with the United States.
Concerns in South America
The global corn market is searching for a price that rations demand, particularly in the second and third quarters of 2021. For the rest of this year and the first quarter of 2021, the US is the place to shop. But the South American drought and resultant corn-crop issues are certainly a genuine and growing concern for the corn balance sheet.
And now there is talk in the market that the Chinese demand is more than a short-term supply issue, but rather a longer-term structural change in domestic consumption. Some analysts are forecasting Chinese imports of US corn will hit the top end of market expectations next year, and will exceed 50Mt by 2023. Only time will tell on that matter, but while the pig herd is rebuilding and domestic reserves remain tight, the demand is likely to continue.
October soybean surge
Imports of soybeans into the Middle Kingdom for October totalled 8.69Mt, up a stunning 41 per cent on the same period last year. Imports from the US were 3.4Mt, almost triple the 1.147Mt a year ago, and up from 1.17Mt in September.
Chinese customs also cleared 4.233Mt of Brazilian soybeans in October, an 11.6pc increase from 3.793Mt in the corresponding period last year. But that figure was down from 7.25Mt in September as the soybean export season in Brazil winds down and the US starts to dominate fourth-quarter trade.
The world is not rationing global soybean demand on a large scale just yet, in particular from China. And like corn, the ultimate fear is a crop failure in South America, the possibility of which is increasing with every day of scorching weather and no beneficial rainfall.
There was vague talk during the week that some Chinese soybean importers and processors are looking to wash out of US cargoes booked for December and January shipment. It was apparently spurred by the recent Chicago futures rally which collapsed Chinese crush margins. That will be a fascinating discussion, especially in light of the US trade deal commitments and Beijing’s desire to ‘keep the peace’ throughout the Presidential transition.
China imported 630,000t of wheat in October, up 126.9pc from the year prior. They have now imported 6.69Mt of wheat in 2020 against a TRQ of 9.36Mt. With two months of the calendar year left to report, it is possible but highly unlikely that they will breach that mark for the first time by year’s end.
Beijing sold 708,000t of wheat from its strategic reserves in last week’s auction, less than 18pc of the 4Mt offered. Total sales now stand at 13.5Mt since the program began in June. Prices were slightly higher than the previous week, but the clearance rate has declined from more than 70pc in October, suggesting that Chinese consumers are gaining comfort with the domestic grain supply outlook.
October barley imports came in at 5.98Mt, a jump of 13.4pc on the October 2019 number. Much of this barley came from France, which is posing challenges for European Union feed manufacturers. And as long as the Chinese tariff remains in place on Australian barley, it is highly likely that the Chinese consumers will continue to turn to France, especially to meet their malting barley requirements.
French barley yields disappointed last harvest, and French farmers have reportedly reacted by reducing the planted area in the recent seeding campaign. They evidently didn’t read the tea leaves very well, as ongoing Chinese demand could be a game-changer for the wheat-barley price relationship in the EU. This would have significant consequences for stockfeed producers, and ultimately, planting decisions by farmers right across Europe in coming years.
The recovery of China’s pig herd has been a fundamental driver of the country’s feedgrain demand this year. According to the agriculture ministry, the nation’s pig herd grew by an impressive 26.9pc in October. However, the resurgence in pork output is likely to take much longer, as the quality of the nation’s herd is poor and a higher-than-usual proportion of offspring is going back into the breeding program.
This was certainly borne out in the October customs data, with pork imports jumping to 330,000t, up 80.4pc from a year earlier. In the January-to-October period, China imported 3.62Mt of pork products, a 126.2pc leap from the same period in 2019. The scramble for protein also pushed beef imports up 12.2pc from a year ago to 170,000t in October. That took 2020 beef shipments to 1.74Mt.
There seems little doubt that the short-term demand from China for grain from almost all corners of the globe will continue into the foreseeable future and will dominate grain-market dynamics well into 2021. How that plays out in the long term is the key question, but there appears to be a growing bias toward more as opposed to less.
Australia’s participation in that fundamental change relies heavily on the cooling of tensions and a diplomatic re-engagement from both parties to better recognise the differences and ultimately resolve the growing trade impasse.