Chinese grain appetite is unabated

China still supporting Australian grain sales | Global Perspective

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China's big demand for feed grain is expected to be sufficient to support all grain prices, including for Australian grain.

China's big demand for feed grain is expected to be sufficient to support all grain prices, including for Australian grain.

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China's demand on global markets will be sufficient to support all grain prices.

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China's grain demand has surged in 2020-21.

Its imports are set to finish the year 138 per cent higher year-on-year, and 178 per cent above the five-year average.

Australia's ability to capitalise on China's booming grain import program is stifled by its 80.5 per cent tariff on Australian barley.

But such is the surge and outlook for strong Chinese grain demand, that this boom is still good news.

China's increased appetite for imports is being driven by demand for feed grain.

This is due to a structural feed deficit in China, which is caused by multiple factors.

The deficit starts with reduced Chinese stocks.

Corn stocks have eroded and, although wheat stocks are high, significant stocks have been sold this year.

The use of wheat for livestock feeding in China was 20 million tonnes higher in the past 12 months than it has been in previous years.

Reduced stocks are in the context of increased feed grain demand as the nation's hog herd recovers from African swine fever (ASF).

Feed grain demand is already elevated, and China's hog herd is still not even back to pre-ASF levels.

Full recovery is unlikely until at least 2024, meaning already-strong demand will grow stronger.

To support reduced pork production - and in response to very high pork prices - the poultry and aquaculture sectors have grown.

So, feed grain demand has expanded in these areas.

On top of an already tight feed grain market in China, economic growth will continue to stimulate underlying food demand.

Though not at the rates of the past decade, even small rates of positive economic growth mean that China's feed grain demand and, therefore, imports can be expected to increase materially in coming years.

Chinese grain production will not be able to grow sufficiently to offset expected demand growth.

Corn production should be higher in the year ahead in response to higher prices, and without the adverse seasonal conditions experienced last year.

But the expected 3-4 per cent increase is likely be offset by the use of more corn in livestock feeding and less wheat. So, the import demand will stay high.

The US Department of Agriculture (USDA) forecasts that China's 2021-22 feed grain imports will increase by another 4 per cent from this year's record high.

Given the deep structural deficit in China's feed grain market, the increases are unlikely to stop into next year.

Rabobank forecasts imports to increase out to 2025-26 - and beyond this, to not fall below 2020-21 volumes until later this decade.

China last week announced new subsidies to assist its grain farmers with rising cost pressures and to insure against production losses and - in the case of corn - price fluctuations.

These measures could take the peaks out of our forecasts, but they will not remove the structural deficit we foresee.

The bad news for Australia is that China has been readily able to obtain barley, mostly from Canada, to satisfy its demand.

A near-term resolution to the barley trade dispute between China and Australia is unlikely, so Canadian barley and North and South American corn will fill this feed grain deficit.

For Australia, wheat and sorghum exports to China remain possible. And the impact of China's demand on global markets will be sufficient to support all grain prices, including here.

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