May 17, 2005

China's grain imports to decline with bumper harvests ahead

Slower-than-expected growth in consumption and abundant grain harvests for 2005 and 2004, will mean smaller imports of wheat or rice, even if the renminbi is allowed to appreciate.

Traders and sources said recent soft prices had even led to officials criticising large wheat imports last year, particularly as Beijing was eager to raise farmers' income.

In addition, outbreak of the highly contagious foot-and-mouth disease is hitting demand for animal feed, while many soy cargos are arriving.

Farmers are also planting at least as much corn as last year, they said.

Notwithstanding a weather disaster, farmers are to start harvesting about 89 million tonnes of winter wheat this month, up from about 86 million last year. Winter wheat accounts for about 90 percent of the country's total wheat output.

The State Grain Administration said Beijing had asked state and local granary firms to suspend sales of wheat reserves in order to support the prices.

The Agriculture Ministry said the wheat price fell in March for the first time in 10 months, with purchase prices in major growing areas down 0.42 percent from February.

"For the government, the crucial thing is the farmers' income,'' said a trader at an international house. "They hope grains prices will be higher so that income improves.''

In the soy market, traders and industry officials feared a renminbi appreciation might accelerate the decline in domestic prices for soymeal and vegetable oils, while a large number of soy cargoes are arriving in the world's top soy importer.

"At present, meal buying is very sluggish, and the meal prices are in the psychological downtrend. If they revalue the renminbi now, it will stimulate further falls," said one official at a crushing plant in southern China.

"Some have already delayed [soy] shipment. But still, huge arrivals are expected in May and June.''

Beijing has not confirmed any outbreak of foot-and-mouth disease, despite talk among traders that this is behind a drop in domestic soymeal prices.

"Now pig farmers are hesitating to raise more swine because of the disease. People say this year the disease for swine is more serious than the year before," said the crusher official.

In the corn market, Beijing has already raised export subsidies to support prices following a record crop.

Asked about fresh sales, an official at a corn exporter said: "Now we cannot sell more. The only thing we are doing is to fulfil the contracts in hands."