Falling demand for wheat and corn in China could crash global markets

According to a number of traders, buyers in China have not made large purchases for several months. Given the low domestic prices, this trend is likely to continue into the third quarter,” they said on condition of anonymity.

The International Grains Council and the U.S. Department of Agriculture still expect significant Chinese purchases this year and next. If imports fall sharply, a key component of demand will be jeopardized, inevitably hitting farmers from America to Europe and Australia.

The fall in import demand has been attributed to a sluggish economy and successive record harvests in China. The government has been forced to stockpile wheat and corn to support local farmers, with foreign supplies restricted or even canceled to stabilize the domestic market.

This should alarm China’s foreign suppliers, especially after Turkey, the world’s fifth-largest wheat buyer, suspended grain imports for four months to protect local producers. Weak consumption from China, the second-largest importer, will only add to market nervousness.

“The economy is really bad and overall demand from the whole society is falling,” said Ma Wenfeng, a senior analyst at BOABC consultancy in Beijing. “The government wants to raise grain prices and increase farmers’ income to boost rural demand. It is better to buy grain domestically than from abroad.”

China has long bought soybeans in large quantities. Most of it goes to feed hogs. But the explosive growth in demand for wheat and corn, which are also used in animal feed, only came about as part of the diplomatic commitments China made during its trade war with the Trump administration.

Wheat and corn imports from January through April actually outpaced last year’s pace. That makes the sudden drop in activity all the more striking and could leave international markets vulnerable to falling prices if China does adjust its overseas buying strategy.

In the last full week of May, the U.S. had just 86,300 tons of corn left to ship to China for the current marketing year that ends in August, down sharply from 631,600 tons last year, according to the U.S. Department of Agriculture. There are no outstanding corn sales for next season – something that hasn’t happened in five years – and just 62,500 tons of wheat.

While the situation could change quickly, especially with bad weather affecting the harvest, China’s grain surplus is unlikely to shrink significantly as long as consumption remains so weak. In addition, experts are predicting another record year in terms of wheat and corn yields.

According to Charles Hart, senior commodities analyst at BMI, a unit of Fitch Solutions, improved harvest conditions are likely to help reduce China’s wheat deficit from nearly 17 million tons this marketing year to less than 7.5 million tons in 2024-25, leading to lower import demand. He said corn imports will also fall in 2024-25 as production increases.

Feed demand

On the demand side, China’s pig population is declining and meat consumption remains subdued. Mysteel Global expects half as much wheat from the new crop to go to animal feed as last year. Margins at mills that produce flour for cakes and bread are also suffering as people cut back on spending, Mysteel said.

That means fewer imports. China’s Ministry of Agriculture predicts corn shipments in the new marketing year will drop by a third, to 13 million tons, from the 19.5 million tons estimated for this year. The USDA still expects 23 million tons, although it may revise that figure on Wednesday when it releases its monthly forecasts.

In reality, supplies could fall even further. China manages imports under a quota system that this year will allow just over 7 million tons of corn and nearly 10 million tons of wheat at the lowest tariff of 1 percent. After that, duties jump to 65%. While buyers will seek to use their quotas, the economics of importing beyond that make much less sense,” said BOABC’s Ma.

“At the end of the day, we don’t need such large imports given record harvests and, more importantly, a significant drop in consumption,” he said.

Tags: China, corn, wheat, supply and demand balance