July 29, 2013

 

China's grain imports to rise in H2 2013

 

 

China's grain imports will rise in the second half of this year, with the population continuing to seek high-protein foods and with the expansion of grain crops for industrial use.

 

Ding Shengjun, senior researcher at the Academy of the State Administration of Grain, said China's industrial and customer demand for crops such as corn, wheat and rice has grown quickly since 2012.

 

Even though China's summer grain harvest rose 1.5% this year to 131.89 million tonnes, the nation still faces the challenge of balancing supply and demand. First-half grain imports from such nations as the US, Canada and Australia stood at 5.48 million tonnes, with a total value of US$2.03 billion, according to the General Administration of Customs.

 

"Industrial consumption now far exceeds food demand for grain", Ding said. "More than 72% of corn is consumed in the intensive-processing industries of animal feed, ethyl alcohol and starch."

 

The China National Grain and Oils Information Centre reported that more than 120 million tonnes of corn and 7.5 million tonnes of wheat were used by the livestock industry in 2012. Biochemical producers used 61 million tonnes of corn last year, up 9% from 2011.

 

Not all of the processed grain is sold domestically. China produced 190 million tonnes of animal feed for export last year, up 5.5% on-year. The feed was sold to a number of countries, including Mongolia, Ukraine, Australia and New Zealand, according to the Centre of China Agriculture for Trade and Economy of the Ministry of Agriculture.

 

Domestic grain output reached 590 million tonnes in 2012, while imports of wheat, rice and corn set a record of 71 million tonnes. Including such minor products as sesame, total grain imports hit 80.25 million tonnes.

 

The nation's growing demand for imported grain is causing some concern. The weak global economy has meant that world food prices "have dropped to a lower price range since 2012, especially for grains", said Wang Kai, a professor at Nanjing Agricultural University in Jiangsu province. He said this has caused a price gap between Chinese and foreign grain and stimulated imports.

 

According to the USDA, the average US wheat price was RMB1,873 (US$305.70) per tonne on Monday (Jul 22). But, as of Tuesday (Jul 23), the price traded on China's Zhengzhou Commodity Exchange was RMB2,580/tonne (US$421).

 

With difficult conditions in many world markets, "inelastic demand for agricultural products has produced a safe house for investment", said Ding Lixin, a researcher at the Chinese Academy of Agricultural Sciences in Beijing.

 

As a major grain importer, China has a huge influence on global grain prices. Major purchases made by Chinese grain importers, usually giant State-owned enterprises such as the China Oil and Food Corporation (COFCO) Group and the China Grain Reserves Corp, are quite possibly pushing prices higher at the Chicago Board of Trade.

 

Frost and then wet conditions during the harvesting season in Henan, Anhui, Jiangsu and Shaanxi provinces cut China's wheat output in the first half. In Henan, for example, about 113,333 hectares of planted area for wheat was damaged by adverse weather.

 

The USDA has raised its forecast for Chinese wheat imports by five million tonnes to 8.5 million tonnes in the 2013-14 crop year. The Food and Agriculture Organization (FAO) of the United Nations has forecast that China's wheat imports for 2013-14 will reach five million tonnes. The FAO forecast is based on June and July trade figures, which were two million tonnes above the levels of 2012-13 and the highest since 2004-05, when China imported 7.3 million tonnes of wheat.

 

Abdolreza Abbassian, a senior economist at the FAO, said the weather also affected this year's wheat quality, another reason for higher imports. "Another reason for larger purchases of wheat could be associated with stocks, which may be relatively low. Thus China may be importing more also to build depleted inventories," Abbassian said. "The FAO doesn't expect China's wheat production, including already harvested amounts before mid-June this year, to decline by 20 million tonnes.

 

"Wheat production in China this year is likely to be close to last year's record level of about 120.5 million tonnes," said Abbassian.

 

"The stable growth of China's agricultural output and increasing national incomes have meant better access to food," said Yu Bin, director of the Department of Macroeconomic Research at the State Council Development Research Centre.

 

"The most obvious (impact) is the modernisation of the livestock and food supply chains. That is a big area and there are lots of investments going on there."

 

Yu said China's on-going urbanisation is transforming 17 million people from farmers to urban residents every year, which means their diet will change from grain to more protein-rich foods such as meat, eggs, milk and yogurt. These foods are ultimately based on a huge amount of grain consumption, so they indirectly lead to growing imports.