Comfortably-placed China good for grain, oil markets
The world carefully tracks what China grows due to the sheer size of its food market. China buys food worth $12 billion from USA alone.
By Nidhi Nath Srinivas, ET Bureau |
NEW DELHI: China is poised for bumper harvest of grain and oilseeds that should bin last year's shortages. Worried about food prices, Beijing has also agreed to import GM soyabeans. But this frenetic growth in Chinese food supply could make life pretty tough for punters in India. ET helps you join the dots.
The world carefully tracks what China grows due to the sheer size of its food market. China buys food worth $12 billion from USA alone. It is the fourth largest exporter and importer of food in the world. In some commodities, such as soyabeans, it is the market maker. It is the top producer and consumer of wheat.
In terms of value, China's main agricultural imports are grain, cereals, soyabeans and edible oils while its major exports include fish and fish products, vegetables, grain including rice, and fruit and fruit juice. So, China's decisions to import and export a variety of food crops directly impacts the food budgets and farmer fortunes of other countries, especially India.
Take oilseeds. This year China expects to harvest 56 million tonnes oilseeds, a jump of 3 mt over last year. Soyabeans are China's largest oilseed crop, and production has risen 25% in last five years. But consumption of soya as food has jumped 43%. Last year, China's soya harvest slumped to the lowest in seven years. That's why a 18-mt crop this year would be a welcome relief.
Since local vegetable oil production of less than 10 mt is not enough to meet Chinese demand of 23 mt, every year China also imports 2 mt palm oil from Malaysia and Indonesia, and is the single biggest buyer of soyabeans from US and Brazil.
This year, with rebound in its own production, China will not be in a hurry to import either beans or vegetable oil. That should cool down the international oilseed and edible oil market. There is currently so much edible oil in the Chinese pipeline that local brands chopped MRP by 10% last month.
The upside is that with vegetable oil affordable again, and the economy growing at 8%, Chinese families may start buying more. That could trigger higher imports again, putting pressure on the international market.
For Indian oilseeds industry, China's temporary retreat from the world market couldn't be worse timed. With a large soya crop of our own this year, the general bearish trend could settle down for the entire season if global palm and oilmeal markets remain lacklustre. Palm oil prices have fallen 47% from their March peak of 4,486 ringgit.
Indian companies, setting up large plants in an asset creation overdrive funded by extraordinary profits last year, would thus have to depend even more on savvy trading in a volatile market to keep bottomlines above water. Market players say even the usual 2% profit margin looks iffy.
The more relaxed approach to GM soya would also bring cheer to large US companies which have crushing plants in China's 40-mtpa industry. About 30% of Archer Daniel Midland's soyabean crushing capacity is now located in China. Cargill has a 5,000-tcd crushing plant in Jiangsu province and a 3,000-tcd plant in Guandong province.
This season corn crop conditions in the major production provinces are above the five year average. The fall grain harvest accounts for 70% of the nation's total grain production and current crop growth (including rice, corn, and soyabeans) is rated as relatively good. Since China's grain bins act as a critical buffer stock for the rest of the world, this is welcome news for global grain markets.
These good harvests have a political significance as well. For the last one year, China has been terribly worried about its food security. According to data from Global Trade Information Services, Geneva, (GTIS), China for the first time in decades had a farm trade deficit in the first half of 2008 because the value of imports rose 72% while exports rose 12%.
The rising food bill has pushed Beijing to adopt a more protectionist stance in farm trade talks, even though it has benefited from the free-trade system umpired by the WTO, which China joined in 2001. That is one reason why it joined India and against the United States in pushing for a safeguard to protect developing-country farmers from a surge in imports. With bigger harvests and lower dependence on import, China can breathe a bit easier. So will the world markets, giving consumers in India an added reason for festival cheer.
The world carefully tracks what China grows due to the sheer size of its food market. China buys food worth $12 billion from USA alone. It is the fourth largest exporter and importer of food in the world. In some commodities, such as soyabeans, it is the market maker. It is the top producer and consumer of wheat.
In terms of value, China's main agricultural imports are grain, cereals, soyabeans and edible oils while its major exports include fish and fish products, vegetables, grain including rice, and fruit and fruit juice. So, China's decisions to import and export a variety of food crops directly impacts the food budgets and farmer fortunes of other countries, especially India.
Take oilseeds. This year China expects to harvest 56 million tonnes oilseeds, a jump of 3 mt over last year. Soyabeans are China's largest oilseed crop, and production has risen 25% in last five years. But consumption of soya as food has jumped 43%. Last year, China's soya harvest slumped to the lowest in seven years. That's why a 18-mt crop this year would be a welcome relief.
Since local vegetable oil production of less than 10 mt is not enough to meet Chinese demand of 23 mt, every year China also imports 2 mt palm oil from Malaysia and Indonesia, and is the single biggest buyer of soyabeans from US and Brazil.
This year, with rebound in its own production, China will not be in a hurry to import either beans or vegetable oil. That should cool down the international oilseed and edible oil market. There is currently so much edible oil in the Chinese pipeline that local brands chopped MRP by 10% last month.
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The upside is that with vegetable oil affordable again, and the economy growing at 8%, Chinese families may start buying more. That could trigger higher imports again, putting pressure on the international market.
For Indian oilseeds industry, China's temporary retreat from the world market couldn't be worse timed. With a large soya crop of our own this year, the general bearish trend could settle down for the entire season if global palm and oilmeal markets remain lacklustre. Palm oil prices have fallen 47% from their March peak of 4,486 ringgit.
Indian companies, setting up large plants in an asset creation overdrive funded by extraordinary profits last year, would thus have to depend even more on savvy trading in a volatile market to keep bottomlines above water. Market players say even the usual 2% profit margin looks iffy.
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While Indian edible oils industry may resent the Chinese soya slowdown, American farmers can celebrate. Now that China has approved Monsanto's 'Roundup Ready 2 Yield' soya for import, this new seed technology has a leg-up. Since China buys a third of US soyabean exports, Midwest farmers may plant this higher-yielding GM bean in 2008. That would increase global soya supply next year.The more relaxed approach to GM soya would also bring cheer to large US companies which have crushing plants in China's 40-mtpa industry. About 30% of Archer Daniel Midland's soyabean crushing capacity is now located in China. Cargill has a 5,000-tcd crushing plant in Jiangsu province and a 3,000-tcd plant in Guandong province.
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China is also preparing for a good grains harvest. Corn is critical to meet growing demand from its meat and dairy industry. When farmers earn a profit of $60 per head from their backyard swine herds and get $220 more than last year per cow, that is inevitable. Till now corn production has outpaced consumption by rising 25% in the last five years. Beijing has already suspended new corn-based ethanol projects, including any plans to expand existing plants. Even so, China is expected to soon turn net importer of corn.This season corn crop conditions in the major production provinces are above the five year average. The fall grain harvest accounts for 70% of the nation's total grain production and current crop growth (including rice, corn, and soyabeans) is rated as relatively good. Since China's grain bins act as a critical buffer stock for the rest of the world, this is welcome news for global grain markets.
These good harvests have a political significance as well. For the last one year, China has been terribly worried about its food security. According to data from Global Trade Information Services, Geneva, (GTIS), China for the first time in decades had a farm trade deficit in the first half of 2008 because the value of imports rose 72% while exports rose 12%.
The rising food bill has pushed Beijing to adopt a more protectionist stance in farm trade talks, even though it has benefited from the free-trade system umpired by the WTO, which China joined in 2001. That is one reason why it joined India and against the United States in pushing for a safeguard to protect developing-country farmers from a surge in imports. With bigger harvests and lower dependence on import, China can breathe a bit easier. So will the world markets, giving consumers in India an added reason for festival cheer.
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