December 17, 2003


China to Purchase US Wheat as Trade Tensions Ease


China is ready to buy substantial amounts of U.S. wheat in 2004 as trade tensions ease following Chinese Premier Wen Jiabao's visit to the United States. The wheat purchase is aimed to narrow the huge trade surplus with the U.S., while replenishing government stocks and satisfying millers' needs.


Last week, China signed deals with Canadian Wheat Board to import 500,000 tons of Canadian wheat in 2004, part of the trade agreement reached during Chinese Premier Wen Jiabao's visit to Canada.


But the wheat deals with the U.S. could be much bigger, perhaps as much as 1 million tons or even higher, sources in China said Tuesday.


China's wheat buying delegation cancelled a trip to the U.S. last month after Washington announced tariffs against some of Chinese-made textile products.


But trade tensions between the nations have eased since the Chinese Premier's visit to Washington last week.


"China needs to import much more wheat in 2004, partly to replenish government stocks and to satisfy the blending need of millers, as well as to cut the huge trade surplus with major trade partner," said a official from China National Cereals Oils and Foodstuff Import & Export Corp., or Cofco, the sole government authorized wheat importer and exporter in China.


He didn't give specific projections for the possible wheat deals, but sources in Beijing indicted China is likely to buy more than 1 million tons of wheat from the U.S. in the 2004 calendar year.


China's wheat production has been falling for the past few years, due to lower acreage as farmers reacted to government policies to plant other crops.


Prospects for the new-crop winter wheat are far from certain. That crop is now mostly in dormancy and will be harvested in May and June.


Wheat production in 2004 is forecast to be lower than the estimated production of 82.00 million tons this year, according to analyst from a government-backed grain think tank this week.


"If we assume a flat or lower wheat production next year, then it could almost be certain that China will begin to import larger quantities of wheat from U.S., Canada and Australia in the first half of 2004 calendar year, since the wheat stock situation could be tightest before middle of 2004," said a trader from Cofco in Beijing Tuesday.


In the first 10 months of 2003, China's wheat imports were 320,158 tons, 46% lower than the same period of 2002, official customs data showed.

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