November 12, 2004
China's Wheat Imports in 2005 May Slow on Better Crop
China's wheat imports may remain relatively high in 2005. But they will not match the high levels seen in 2004 as a better domestic crop will reduce the country's reliance on imported grains, according to analysts on Thursday.
The Chinese government recently estimated 2004 grain output at 455 million tons, rising from 431 million tons produced in 2003.
Wheat output is expected to increase to more than 91 million tons this year from 86.5 million tons in 2003, the government said.
China also plans to expand its wheat acreage to 22.7 million hectares in the winter season of 2004, an expected rise of 666,600 hectares on year. This could further boost 2005 output by at least 3.5 million tons, according to state media reports.
About 90% of the country's wheat crop is sown in winter and harvested the following summer, with only the remaining 10% sown in the spring.
Following a steady decline in domestic grain production and stocks that resulted in rising prices since late last year, the government introduced incentives such as direct subsidies and tax cuts earlier this year. These measures are leading to a recovery in production, analysts said.
"(With) better harvests this year plus (an) expected output increase in 2005, there will be less (of a) challenge to balance the wheat market," said an analyst with China National Grain and Oils Information Center, a research think-tank affiliated to the State Grains Bureau.
Market Still in Deficit Despite Higher Production
"With an estimated wheat demand of more than 100 million tons, there will still be (a deficit of) around 5-6 million tons in the 2004-05 marketing year," according to the CNGOIC analyst.
China's current wheat marketing year runs June 2004 through May 2005.
The analyst didn't provide an estimate for China's current wheat stocks, a factor that will eventually determine the demand for imports next year. Chinese authorities seldom talk about grain stocks in public.
Speculation, however, points to a agreement that stocks have fallen to a level not seen in the last several years as production steadily declined until last year.
"Wheat imports may stay at a relatively high level (in 2005), but it's difficult to match this year's (level)," the analyst said.
The persistent supply gap could also lead to a further rise in wheat prices in the months ahead, industry officials say.
Wheat prices rose 37.7% on year in the third quarter of 2004, compared with an overall rise of 35.1% in grain prices, according to data from the National Statistics Bureau.
VAT Exemption Boosted 2004 Wheat Imports
Analysts said the sudden jump wheat imports this year was mainly because of a special tax exemption provided by the government.
In April, China exempted wheat imports from a 13% value added tax for two months and later extended the exemption until the end of the year as domestic wheat demand far exceeded supply with prices remaining high.
The Chinese government's eagerness to allay concerns of foreign governments such as those of the US which ran a huge trade deficit with the former, also lead to higher wheat imports this year, analysts said.
According to customs data, China imported 4.97 million metric tons of wheat in the first nine months of 2004, up sharply from 308,559 tons in the same period last year. Meanwhile, Chinese wheat exports fell 51% to 658,731 tons during January to September from 1.34 million tons in the same period of 2003.
"Price is a concern for making a decision (to import), especially if you have to pay an additional 13% tax," said an analyst at a futures trading company.
It is not clear whether China will further extend the tax exemption for wheat imports in 2005.
The country usually uses imported wheat to replenish state reserves as domestic wheat prices are often lower than prices of imported wheat.
"There is a need to import due to insufficient domestic supply. But as the (supply-demand) gap is not significant and domestic production is recovering, import may prove to be limited," he added.
