December 8, 2003

 

China Holds Key In Determining Market Direction of Corn and Soybean
 

China holds the key in determining the direction of the most volatile commodity markets in years, said Robert Wisner, an Iowa State University Extension economist in the United States.

 

"China will likely be the major focus of corn and soybean markets for the next several months," Wisner speculated.

 

A textile trade dispute between the United States and China and tensions over the independent status of Taiwan are roiling diplomatic waters between the two countries and lending an uncertain air to the future of U.S. commodity sales to China.

 

Earlier this year, China made a commitment to buy large quantities of U.S. agricultural and industrial products to help reduce the two countries' trade imbalance, which now swings heavily in favor of China.

 

Initially, Chinese Premier Wen Jiabao is scheduled to meet with President Bush yesterday, and the Chinese were said to be eager to head off any trade tensions until the textile and Taiwan disputes hit.

 

Chinese purchases of U.S. soybeans through late October were running 162% above a year ago, Wisner said.

 

Since September 1, U.S. soybean exports sales to all customers are 26% more than a year ago.

 

Chinese soybean purchases from the United States are higher because the Chinese soybean crop is smaller than a year ago, and there have been logistical problems at Brazil's export ports, the United States' biggest competitor for soybean sales to China.

 

Because dry weather has reduced this year's U.S. soybean crop, world soybean markets will be especially volatile, Wisner said.

 

Dennis Friest, a farmer from Radcliffe who is a member of the American Soybean Association's (ASA) international trade committee, said the Chinese are buying U.S. soybeans to supply protein for aquaculture and livestock production.

Economic growth and rising incomes in China mean many Chinese are trying to improve their diet by consuming more protein, Friest said.

 

For more than 20 years, the ASA has had an office in Beijing to promote the sale of U.S. soybeans to China. The marketing efforts are paying off, he said.

 

"We soybean producers are growing a global commodity in a global marketplace," Friest said. "China is the number one player in that marketplace right now."

 

Half of Iowa's soybeans are exported, Friest said. That makes market access in foreign countries a critical issue for Iowa soybean farmers.

 

"A lot of it is just politics," said Friest, referring to the diplomatic furor between the United States and China. "We have to fight this fight all the time."

 

Although U.S. corn export sales are running well ahead of year-ago levels, U.S. corn sales to South Korea have been hurt by competition from China.

 

Since the current marketing year began September 1, South Korea has bought 3 million bushels of corn from the U.S., Wisner said. Last year at this time, Korea had purchased about 11 million bushels of U.S. corn. The Chinese have replaced the U.S. as Korea's leading corn supplier.

 

"If the Koreans make large purchases of U.S. corn for several weeks, it would be a good indication that China's export supplies are being reduced," Wisner said.

However, Wisner warned, it has been extremely difficult to predict China's trade patterns, particularly for corn.

 

Chinese corn production is down from a year ago and demand for corn is increasing in China, Wisner said.

 

"If China does reduce its corn exports, it has the potential of pushing corn prices higher," he said.

 

Because the supply of corn and wheat in the world is near record lows as a percent of annual use, any cuts in Chinese corn sales is likely to create substantial impact on grain prices, Wisner said.