May 24, 2004

China Chips Away At Outstanding 2003-04 US Wheat Sales

China has been steadily shipping a significant quantity of its U.S. wheat purchases made fairly late in the 2003-2004 marketing year, despite some early doubts after the shipments were slow to move.
 
As of mid-May, China had shipped out 916,800 metric tons of U.S. 2003-04 wheat, from total 2003-04 sales of 1.4 million tons. This includes 52,500 tons, or 1.9 million bushels, moved to the China mainland for the week ended May 13.
 
Because the bulk of the sales on the books were made in January and February, traders had been wondering if the grain would be shipped out by the time the 2003-04 marketing year concludes at month's end. But recently China has been taking shipment on a few million bushels each week.
 
China still has 482,600 tons of 2003-04 wheat awaiting shipment and only a couple weeks left to do so.
 
"The clock's ticking," said Bill Nelson associate vice president for A.G. Edwards & Sons in St. Louis.
 
But Nelson is also quick to add, "I don't suspect that China really cares about if they move the wheat in the 2003-04 marketing year or not. They won't erase sales from the books, just carry them over to the new year."
 
Louise Gartner, analyst with Spectrum Commodities in Dayton, Ohio, also suspects that the grain will be switched over to the new marketing year. "It's not like they are canceling the sales," she said.
 
Traders will continue to keep tabs on the inspected wheat shipments headed to the China mainland through the U.S. Department of Agriculture weekly inspection reports.
 
INCREASED DEMAND FOR 2004-05
 
Already for the 2004-05 marketing campaign, China has 1.575 million tons of U.S. wheat on the sales books.
 
This Chinese demand is well above recent years. In 2003, China shipped out just 81,100 tons as of mid-May.
 
Nelson said, "We are seeing more evidence from the USDA about long-term Chinese wheat demand."
 
Recently the USDA world supply and demand reports projected China's 2004-05 wheat imports at 8 million tons, which is well above the 2003-04 estimate of 3 million and less than half a million in 2002-03.
 
A special USDA report released this week said China wheat imports could spike to levels as high as 10 million tons in 2004 or 2005. However if prices rise enough to make imports commercially viable, domestic output will also likely increase enough to bring imports back to around the 5-million ton range shortly thereafter.
 
The increased import needs stem from a steady reduction in China's wheat acreage that has been seen every year since 1997-98. In fact, China's 2004-05 wheat seedings are projected to be a record low of 53.1 million acres, according to USDA forecasts.
 
Early 2004-05 wheat output projections out of China show the crop at a 20-year low.
 
"In the long run you can't ignore the fact that China is using about 100 million tons of wheat and only growing 80 million. You can't go on at that pace," said Nelson.
 
This week, Matt Weimar, U.S. Wheat Associates regional vice president, said in the organization's newsletter, "What (Chinese) producers plant this fall will be very telling. They are likely to forgo wheat if prices remain advantageous for cotton, fruits, vegetables, and horticulture for landscaping in expanding urban areas. If wheat prices stay at or above current levels, some abandoned land may come into production."