November 12, 2003

 

 

China Soybean, Corn & Wheat Influencing Global Market Situation
 

University of Illinois ag economist Darrel Good says the demand side of the markets has been dominated by China in recent weeks, and that is unlikely to change fast. He says the magnitude of soybean and wheat imports by China and the level of Chinese corn exports have the potential to significantly influence prices in the current environment of tight world grain stocks.

 

Soybeans

 

Good notes that to date most of the focus has been on the large sales of U.S. soybeans to China. Two months into the 2003-04 marketing year, exports and outstanding export sales to China totaled 218 million bushels, up from last year's 84 million bushels. Only 54 million bushels of that total had been shipped as of October 30.

 

"In addition, outstanding sales to unknown destinations, which may include some sales to China, remained large at 100 million bushels, compared to 86 million at the same time last year. For the year, the USDA has projected Chinese soybean imports from all origins at 753 million bushels, about unchanged from imports of a year ago, he says, adding that projection could change in upcoming USDA reports.

 

"The rapid pace of Chinese purchases of US soybeans in the face of larger South American soybean stocks, prospects for a significant increase in South American production, and rising prices has been a surprise. With the need for a large decline in the rate of consumption of US soybeans, China's import purchase decisions will be extremely important," he adds.

 

Corn

 

China has also been a large net exporter of corn in recent years. Those sales totaled 130 million bushels in 1998-99, but grew to 570 million bushels in 2002-03, says Good. For the current year, the USDA projection of Chinese corn exports was only 312 million bushels due to falling supplies.

 

"So far this fall, Chinese corn exports have been large, so the market is expecting a sharp decline in such exports sometime early in 2004," said Good. "There is some potential that China could emerge as an importer of corn in the near future.

 

The market will be monitoring the activity of major importers of Chinese corn, particularly South Korea, for indications of a return of those countries to the US market."

 

Wheat

 

China has not been a major participant in world wheat trade in recent years, Good said. In the 2001-02 marketing year, China exported an estimated 55 million bushels of wheat and imported an estimated 40 million bushels. Last year, Chinese exports were estimated at 63 million bushels and imports were estimated at 16 million bushels.

 

For the current year, the USDA has projected a continuation of that pattern, exports of 48 million and imports of 18 million bushels. Through Oct. 30, 2003, (the first five months of the 2003-03 marketing year) the USDA reported that China had imported, or purchased for import, 10.5 million bushels of US wheat.

 

Cumulative purchases a year ago totaled only 1.8 million bushels. Outstanding export sales of US wheat to unknown destinations as of October 30 were reported at 30.4 million bushels, up from last year's 8.2 million bushels.

 

"There continues to be speculation that China may import 70 to 100 million bushels of wheat this year," said Good. "That speculation, along with dry weather in major US winter wheat producing areas, has contributed to the recent 60-cent rally in wheat futures."

 

However, Good added that the trade decisions by China are not the only factors that will influence prices in coming weeks. USDA's new production forecasts for the US corn and soybean crops released today could be important.

 

"The market is generally expecting a slightly smaller forecast for the 2003 US soybean crop and a larger forecast for the corn crop," he said. "In addition, the progress of South American crops will be extremely important for demand prospects for US soybeans and, to a lesser extent, US corn.