Media Falls for China Won’t Buy Grain… Again (AiQ Opinion)
China’s annual grain imports surged to 60 million tonnes in 2023, doubling over the last decade. Importers arbitrage grains to meet ballooning demand, substituting high-priced wheat or corn whenever cheaper alternatives are available. 2024 will be another strong year for imports.
Yet, the conclusion Western media jumps to each time prices are low is “China will buy less.” China will not necessarily buy less; they will become more efficient importers for two reasons. First, objective weather data caution the optimistic production outlook. Second, integrating COFCO and Sinograin will make China’s buying process more efficient and less transparent.
China’s weather is the foremost determinant of its need to import goods. Realized weather data suggests traders should take a wait-and-see approach. Jumping to conclusions on China’s demand outlook based on world prices and unofficial reports has produced backward-looking, inaccurate assumptions.
Original cooperation announcement from COFCO's website.
Second, China’s massive state-owned enterprises (SOEs) are working together. In March of 2022, COFCO and Sinograin began their integration through the first of two joint ventures. The second was announced in early 2023, culminating in a strategic relationship with shared objectives. The companies collaborate to promote China’s agricultural policies and food security through streamlined operations and improved efficiencies.
An example is COFCO’s STS11 port expansion in Santos, Brazil, under a new 25-year lease. COFCO’s export capacity will increase from 3 million to 14 million tons per year in 2026. A company spokesperson was quoted during the ceremony: “The 14 million tons per year capacity offered by STS11 is aligned with our growth objectives in Brazil and our plans to rely on our own terminals for exports in the future.”
Groundhog Day from the Western media and newsletters:
Link the BB article here
On April 2, Bloomberg reported that China asked traders to slow purchases. Shortly after, newsletters began regurgitating false confirmations of Ukraine, USA, and Australian washouts. Most shipments were either delayed or swapped for cheaper feed grains. China’s total grain imports did not slow despite headlines claiming such.
January through April imports totaled 24.3 million tonnes, with year-over-year increases of 84% for corn, 107% for sorghum, and 151% for barley. Only wheat was down 13% from the year prior. Global weather problems in wheat-producing countries encouraged substitution for other feedstuffs.
Here we go again: two excerpts from articles since the “announcement:”
CHINA is asking domestic traders to buy less foreign grains as ample supplies and weaker-than-expected demand weigh on prices and threaten its longstanding policy to support local growers.
Beijing this week summoned top importers for meetings and suggested they halt purchases of barley and sorghum, according to people familiar with the matter. The move, ahead of a forecast bumper grains harvest this year, is the latest effort by China to ease domestic oversupply and bolster local prices.
Governments are struggling with how best to support farm income as commodity prices fall below the cost of production. China’s need to support domestic income while promoting consumption is a principal concern for Beijing. The government is considering a 5.5 trillion package to help homeowners lower borrowing costs to support consumers.
The full Guardian article here.
China’s weather has been far from perfect, which is another consideration when accepting the official narrative of record grain production. Reuters published an article on August 21 emphasizing China’s 138.22 million production as a reason exports would slow. May - July imports rose above 2023 levels after a slow start to the year. Two of China’s largest wheat-producing states, Shandong and Henan, averaged less than 60% of normal precipitation for the wheat season.
Weather in the corn-producing states of Heilongjiang, Inner Mongolia, and Jilin improved in July when rains arrived just in time. Temperatures were above normal for the second half of the growing season, but precipitation levels offset the heat risk. Inner Mongolia, China’s third-largest producing state, averaged above-normal temperatures and stayed dryer than usual until early August.
Other considerations
JCI's post on X here
China’s sow herd has expanded for the last four months, and farming margins in the previous two months are the best since late 2021, according to JCI. Export sales of US corn and sorghum rose after Brazil’s strong cash markets pushed business back to the USA.
Europe’s grain losses will total more than 10 million tonnes from a year ago. Grain and oilseed supplies across the continent will tighten in early 2025. The Black Sea, Russia, Ukraine, Romania, and Bulgaria experienced one of the driest and hottest on record. The export potential will be limited beginning in Q4 of 2024. Much of the cheap grain China could secure over the last 18 months is no longer offered.
This will be one of South American grains' most important growing seasons. Corn is projected to lose more than 2 million hectares in Brazil and Argentina. If the patterns stay dry, the losses will quickly mount. The critical planting window begins in six weeks.
Link to the full story here highlighting Brazil's extreme weather anomalies.
Chinese importers may import less. Beijing could shift its focus to supporting farmers via domestic prices. The weather has improved, but it does not suggest 2024 will be a year for windfall production.
Headlines like “China will stop importing” and “record production based on unofficial reports” are too familiar in Western media. It’s time to stop chasing prices and backward-looking narratives.
Full disclosure: this is not investment or trading advice. I have no inside knowledge of the companies named in this article. Trading futures carries significant risks. Please consult a professional.
