June 1, 2021
Millions of tonnes of wheat expected to be taken up by Chinese livestock industry
China's livestock industry is expected to acquire millions of tonnes of wheat from the country's winter harvest that started last month.
This would extend a run of crop-switching in animal feed and further cool demand for corn imports.
Corn imports surged last year after a decline in stockpiles and production, pushing up prices and reshaping global grain markets as feed producers and pig farmers scoured the world for supplies.
At the same time, China's feed sector purchased record volumes of cheaper wheat from the 2020/21 season for use as a substitute for corn, traditionally the main grain in animal rations. "Feed demand for wheat is expected to remain very high in the new crop year, as wheat still has obvious advantages against old corn, based on current prices," said Li Hongchao, a senior analyst with trade website Myagric.com.
While China caps low-tariff corn imports at 7.2 million tonnes a season, buyers imported a record 11.29 million tonnes in calendar 2020, mainly from the United States, as high domestic prices made imports economical even when paying tariffs.
Feedlots began large-scale wheat substitution from late 2020, effectively easing tight corn supplies and securing domestic feed grain supplies, said Qi Chiming, an analyst with the China National Grain & Oils Information Center (CNGOIC).
The new wheat crop is expected to further dim demand for imports, with CNGOIC predicting a record harvest in 2021 of 136.4 million tonnes.
"We are waiting for the new wheat and will buy whenever there is an opportunity," said a purchasing manager with a major poultry producer in northern China.
The firm started replacing about 15% of corn in feed with wheat earlier this year, and has enough wheat inventories until the end of June.
China is expected to use 36 million tonnes of wheat in feed in the 2021/22 crop year, after using 38 million tonnes in 2020/21, according to CNGOIC.
"Wheat prices are expected to be lower than corn, which gives it obvious advantage to substitute (corn). Feed producers have high enthusiasm to buy the new wheat," said Qi.
The main 2021 wheat harvest began in May in central and southern China, and will peak in June when crops in top producing regions including Henan, Shandong and Jiangsu are gathered.
The quality of some of the new crop in Hubei province, the first major producer to harvest, was affected by heavy rain, but remains appealing for feed use, industry sources said.
To control rising crop prices, China's state stockpiler auctioned off 42.95 million tonnes of wheat reserves from last October through early May, up more than 38 million tonnes from the previous year, according to CNGOIC, citing data from the National Grain Trade Center.
The think tank expects China's grain market tightness to further alleviate.