Record chinese imports vs higher russian wheat export.

04 Feb 2021
It is a rare week when the US sells 2 Mt to the entire world market. China’s unique purchasing power was on display when it bought that amount in one day, with total purchases for last week of circa 6 Mt!
The giant’s appetite for US corn and EU barley has pushed prices to 7 year highs. Wheat prices are struggling as Russia announced very strong and surprising January wheat exports of 3.5Mt. We already knew that the corn, barley and soya balance sheets are far tighter than for wheat. These new developments are simply confirming this situation.
As a result, the CBOT corn-wheat spread shrank from -220 cts ($88) to -100 cts ($40) in 3 months. Furthermore, in France, new crop feed barley prices are now trading at a premium to milling wheat!
So, what exactly is happening in China? Why is the market surprised by the current import needs? Can we expect this demand to continue?
The Chinese appetite for soya is not new. It is simply growing year after year, reaching 100Mt of imports in 2021. This very large volume requires large production figures in the US and South America, which was not the case this season. Consequently, stocks are very low and logistics are very tight within these exporting countries. This is why oilseeds are all trading at record high levels and why the South American crop is being scrutinized.
However Chinese demand for imported cereals was not expected at this level. Even if China holds 50% of world wheat stocks, it does not appear sufficient to balance their domestic grain deficit.  It all began with adverse weather conditions in March and April of 2020. There were a series of typhoons negatively impacting both wheat and corn production. Simultaneously China has rebuilt her hog production industry creating huge units. Some hog farms can therefore absorb huge volumes of corn, measured in tens of corn panamaxes per year!
Last but not least, Chinese has engaged an economic and diplomatic conflict with Australia, one of her larger wheat and barley providers. As a result, Chinese importers had to find new origins and Europe is clearly taking advantage of this.
Chinese demand will inevitably be one of the most important factors to watch for in the coming months. Furthermore, even if they are unpredictable, with domestic prices currently trading  double that of world levels, there is little doubt that this story is not yet over.
Sébastien MALLET