October 2, 2012

As China continues to paint a picture of healthy import appetite for August, it did pullback from July's extremely elevated levels for markets such as corn, soy, palm and soy, while only palm oil and cocoa imports were down on-year.

China's corn imports were weaker on-month after having risen for three successive months, but at 598,800 tonnes remained elevated, up 145% on-year. Exports were modestly higher on the month, at 4,980 tonnes but down 63% on-year. Hence, on a monthly basis, China stayed a hefty net corn importer in August, by 594,000 tonnes. China's wheat imports were flat on-month at 251,400 tonnes, up 96% on-year.

In soy, China's imports in August pulled back from July's 5.9 million tonnes, which was the second-highest level on record. Soy imports came in at 4.4 million tonnes, while year-to-date soy imports are up 17% on-year after 2011's subdued levels, which posted the first on-year decline in imports since 2004. While China's import reliance on the global soy market is structural, acreage devoted to soy in China is lower once again this year as farmers increase domestic corn production, which bodes well for import demand, although the rally in soy prices may dampen the pace of imports over coming months. Record-high US soy prices have seen Chinese crushers increase their off-take from weekly auctions from Chinese state reserves. We expect China to continue selling from reserves over coming months.

Meanwhile, China's vegetable oil import figures eased in August. Soyoil imports at 118,100 tonnes were sharply below month-ago levels of 203,000 tonnes, which marked the highest import level since July 2011. Palm oil imports at 457,500 tonnes were also weaker in August, from July's 472,600 tonnes, which was the loftiest level since March 2012. China's cotton imports at 305,600 tonnes were down 25% on-month after posting a 15% on-month decline in July but were still up 48% on-year.

Cotton exports at 1,400 tonnes were almost unchanged on the month, taking net cotton imports to 304,200 tonnes - their weakest level since October 2011. Year-to-date cotton imports are still up on-year, by 123%, as China's stock-building exercise to support domestic prices and farmers' incomes (a second year of stockpiling was initiated in September 2012 to last until April 2013) mopped up domestic production and led to high domestic prices, with Chinese textile mills resorting to less expensive imports.

This has meant that despite lacklustre demand, China's cotton imports have been strong in 2012. Mills had asked for additional import quotas but China's National Development and Reform Commission (NDRC) earlier this month said no more import quotas would be issued for 2012. In our view, this is likely to imply that the strength in import demand is not expected to continue over the coming year, with the USDA estimating China's 2012-13 cotton imports at 12 million bales, down a sizeable 51% on-year.