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 To give some context, a
report by Chuck Abbot says that, “the largest sale of U.S. corn on
record was 3.72 million tons to the Soviet Union on Jan. 9, 1991,
according to USDA. No corn sale exceeded 1.7 million tons in the
following years so Tuesday’s sale to China is the largest in 29
years.”
Ending stocks for the year are larger than at this time last year.
Although grain stocks are dominated by China, India also holds a
significant share at 17 percent, as they have been on the receiving
end of consecutive record harvests and government procurement.
So why is there so much attention being paid to this economic trend?
What does it all mean?
As the global economy attempts to recover from lockdowns, Chinese
firms are struggling with problems of reduced manufacturing
capacity. What helps China’s recovery is an overall broader demand
for Chinese-made medical products, and China’s factory activity has
been steadily increasing over the last few months. But the demand
for Chinese-made protective gear will eventually slow down, and the
effects of the economic decline will eventually subside.
As cited in a report by Gabriel Crossley and Stella Qiu, Wang Jun,
chief economist at Zhongyuan Bank, said the data showed government
support for the economy has kicked in, which “has boosted domestic
demand, especially investment-led demand, which buoyed imports.”
Overall, China “bought more soybeans, grains, semiconductors, copper
and steel products in September, customs data showed. Analysts
expect imports to stay on an improving trend, underpinned by
strengthening domestic demand.”
China’s imports grew at their fastest pace this year in September,
while exports extended strong gains as coronavirus restrictions
began to ease up. According to a report by Gabriel Crossley and
Stella Qiu on data gathered in mid-October, “exports in September
rose 9.9% from a year earlier, up from a solid 9.5% increase in
August.”
Zhang Jun, chief economist at Morgan Stanley Huaxin Securities, said
“higher purchases of U.S. agricultural and energy products as China
implemented the Phase 1 U.S.-China trade deal, and the resumption of
logistics services in the United States and Europe contributed to
China’s import strength.”
One of the products in high
demand for China is U.S. soybeans. Sales have risen fairly
consistently, as strong demand from China continues to reinforce
price gains. According to one Reuters report, as of mid-October, the
U.S. Department of Agriculture reported 264,000 tons of U.S. soybean
sales to China. Major transactions and deliveries of product started
September 1, as Chinese buyers prefer to make purchases in late
summer or fall due to the timing of U.S. harvests.
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 Chinese demand nearly
overwhelmed U.S. soybean export terminals in October, as China
purchased a vast majority of soybean bushels weighed or inspected
for export at various U.S. port facilities. According to various
sources, Chinese soy purchases accounted for 82% of exported
soybeans from the U.S. as of mid-October.
Corn has also been in high demand. According to official export
reports, “since September 1, corn shipments to China totaled 1.1
million tons, ahead of Mexico at 1.0 million tons, as the largest
destination.”
The USDA reports that Ukraine has been China’s primary supplier of
corn since 2014, and imports of Ukrainian corn to China are at their
highest level in six years.
However, China’s demand for U.S. corn is also strong, meaning
Ukraine is dealing with increased competition from the United
States, and will likely continue to face said competition.
Grain will likely continue to find support due to strong export
demand. The U.S. dollar may also continue to weaken, which is
attractive to foreign buyers. Slow planting progress in other
countries, along with higher import taxes, made early sellers
nervous. For these reasons, exports will be closely watched the next
few weeks if the trend continues.
If corn and soybean demand continues to grow higher in China, U.S.
prices will be well supported on any setback. Even with per-bushel
freight costs, U.S. prices are likely to still be quite low for
Chinese end users.
Overall, it looks like grain prices may still rise before the year
is over, depending on whether or not demand raises with it.
Regardless of what the final price will be, China will continue to
be one of our larger customers into next year.
Sources:
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