China trade: A closer lookChina has been in the spotlight for commodity markets for nearly two years now. It will continue to drive the grain markets, both up and down. Perhaps it is time to take a good look at what is going on with China.
By: Sue Martin, Agweek
China has been in the spotlight for commodity markets for nearly two years now. It will continue to drive the grain markets, both up and down. Perhaps it is time to take a good look at what is going on with China.
China’s economy basically could be driven by domestic demand. With 1.4 billion people getting a taste of a better way of life and a better diet, China’s government has felt the need to rebuild food reserves after liquidating its reserves when it entered into the World Trade Organization. Chinese imports of soybeans are setting records for this year vs. last year at this time.
Imports during March are estimated to have reached a record 3.9 million metric tons, and it is anticipated that imports of soybeans will reach 4 million metric tons for April and May each. Sinograin, a major China grain import agency, is said to have sold 500,000 metric tons of its soy reserves to local crushers this year. Meat consumption has not declined as previously expected as lower consumption from rural areas has been offset by declining prices for urban consumers. Government purchases of local soybeans are forecast to conclude in April. China’s grain and oilseed center issued its April 2009 soybean production estimate, but it kept the estimate unchanged from March’s 15 million metric tons, which was down 3.2 percent from last year. Traders are saying government planning officials are considering buying an additional 3 million metric tons of new crop rapeseed from local producers while the government sells 200,000 metric tons of rapeseed oil to make room for additional purchases of rapeseed.
Meanwhile, China’s winter wheat harvest is, according to its government analysts, expected to total 105 million metric tons. This will be down 1.9 percent from a year ago. Rapeseed output is seen as increasing nearly 10 percent more than last year and corn production is forecast to remain unchanged from March’s estimate, but down from last year by 1.5 percent. Sown area to soybeans is estimated to decline by 3.7 percent this year.
It came as no surprise when a Cargill top trader for China said oilseed and vegoil demand growth will slow to 3 percent to 4 percent compared with the previous year’s pace of 4 percent to 5 percent growth. China’s cabinet plans to boost its annual grain production to 550 million metric tons by 2020, up 10 percent from now. In some areas of the country, corn prices are high because of tight supplies.
Bloomberg carried a story April 13 about China importing corn from the U.S., as U.S. prices plus freight is more reasonable compared with domestic Chinese prices. U.S. corn quality also is better than Chinese quality. Chinese customs data for the first quarter of 2009 show China imported 1.73 million metric tons of fertilizer, a volume drop of 15.4 percent from a year ago for the same quarter. Also, according to Bloomberg, government officials with China’s planning committee suggest the government is mulling the idea of extending the restrictions on foreign firms gaining too much investment in the country’s oilseed processing sector to oilseeds other than soybeans.
On the industrial side of the equation, it appears as though China’s stimulus package is working as industrial output grew by 8.3 percent for March from February, while China’s crude oil imports were up more than 25 percent from February levels. China’s auto sales surpassed the U.S. sales for the third-consecutive month in March.