April 21, 2011

 

China's purchases may impact US feed grain prices

 

 

Changes in Chinese meat and poultry production may lead to a jump in China's US feed grain imports for 2011, a move likely to drive up prices significantly amid tight supplies, said USDA Chief Economist Joseph Glauber.

 

'If they really were to step up imports of feed grains this year, particularly [given] the tight supply, it would have a big impact on world prices,' he said on April 11.

 

If China enters the world market for grains, it will increase its imports from the US, which is the world's largest grain exporter, according to private-sector sources.

 

Glauber said that the US is now running 'very low' corn stocks, even though the expected use of 50 million bushels for ethanol production is offset by a reduction in expected feed and other uses.

 

He said the increase in exports to China is not necessarily driven by the fact that China has given up its plan to stay self-sufficient in feed grains, but by changes in livestock production for which there is increased demand as incomes grow.

 

The way China raises meat and poultry is shifting toward the US pattern of feeding grain instead of 'backyard production,' he said.

 

'The real issue will be not so much if China imports feed grains, but when,' he said. 'The real issue is how fast China is growing as an importer of feed grains.' 

In its April 8 World Agricultural Supply and Demand Estimates, USDA estimated increased corn sales of half a million tonnes to China.

 

'This increase in expected Chinese imports reflects the short-term decline in world corn prices in mid-March that created buying opportunities for Chinese importers,' USDA said. It notes that none of the sales it presumes to have been made to China have been officially confirmed.

 

Glauber said going into 2011, China is forecast to be the single largest export destination for the US after Canada compared to being the fifth largest customer in 2007.

 

Glauber noted that exports to China in vegetable oil and hides are growing, but so far it is not a major buyer of grains. The extent of China's entry into that market is one of the 'big uncertainties' for the future, he said.

 

Overall, USDA projects US$136 billion in exports for fiscal year 2011, which is a record, he said. One relevant factor driving these exports are sales to China, according to Glauber.

 

He noted that US exports to China are less diversified than to other key markets. He said US exports to China are dominated by soy, not just in terms of the protein, but in terms of vegetable oils. According to Glauber, China last year imported one-fifth of the world's exports in vegetable oil.