Plentiful Chinese wheat to pile pain on corn and soy from US and Brazil
A surplus of cheap wheat in China is replacing significant volumes of corn in its huge animal feed market, say feed makers and analysts, curbing consumption of both corn and soymeal and potentially reducing demand for imports.
China’s shift from corn to wheat comes at a bad time for Brazil and the United States, the top soy and corn suppliers to the world’s largest buyer of both crops.
Brazil has produced a record soybean crop this year but shipments to China are currently behind last year’s rate. Meanwhile, China has cancelled more than 800,000 tonnes of U.S. corn orders in recent weeks as buyers await cheaper options later in the year.
“The biggest impact is on corn, the price can’t rebound. Of course that will impact imports,” said Yuan Song, chief analyst at Juxing Agriculture Group.
China, the world’s top wheat producer, started harvesting what is expected to be a bumper crop this month, but it has also bought record volumes of wheat from overseas, particularly Australia.
Buyers paid an average $374 a tonne for Australian wheat last month, Chinese customs data showed, about $30 less than Chinese wheat.
Total wheat imports of 6 million tonnes in the first four months – up 61% on a year ago – and the looming domestic harvest have pushed Chinese prices down 15% in the last two months, making the grain a cheaper option than corn in many areas.
Chinese corn futures have plunged 11% in the same period, said Yuan, the analyst, pressured by mounting stocks of grain.
“If there’s no shortage in China, there’s not much incentive to import,” he added.
Global corn prices fell to an 18-month low earlier this month but have recovered slightly in recent days.
Switching to wheat began in the south where wheat is harvested first, but expanded across northern China this month and will likely be a major feed ingredient until the end of the summer.
“In the first half of April we just used wheat in Hubei and south Henan, and from this week, all feedmills in Shandong, Henan, Hebei and Hubei are using more wheat,” said Jan Cortenbach, technical manager at major poultry producer and feed maker Wellhope Foods Co Ltd, in early May.
Some companies are switching out as much as half of the corn they normally use in feed for wheat, said Yuan, especially in the North China region.
Prices in top wheat growing province Henan fell to 2,820 yuan per tonne in early April, cheaper than corn in the same area, and have continued to fall.
Higher wheat usage will also push down consumption of soymeal, according to feed makers. Wheat has a higher protein content than corn, reducing the need for the protein-rich soy component in feed.
“Increased use of wheat will for sure increasingly lower consumption of soymeal,” said Zhou Guilian, president of the feed research institute at top feedmaker New Hope Liuhe , declining to estimate the size of the impact.
Soymeal prices in the world’s top consumer rallied recently on lower stocks and feed makers are eager to cut costs by cutting back on the ingredient.
Soymeal usage could fall by about 5%, said a soymeal purchasing manager at another large feed maker, hurting profit margins at Chinese crushers and curbing their import appetite.
Global soy prices are also at their lowest level since late 2021 in a well-supplied market.
“Once wheat is used up, soymeal demand will come back a bit. But it feels like wheat supply is quite ample, we may be using it for several more months,” the soymeal purchaser added, declining to be identified because he is not authorised to speak to media.
More wheat cargoes are on the way from Australia, with total arrivals from all origins set to surpass 10 million tonnes for the first time this year, said two traders familiar with Chinese purchasing plans.
The recent plunge in Chinese wheat prices will curb buying for the next few months from Australia, said Nick Orssich, vice president of agriculture for APAC at broker StoneX Group.
Traders say, however, that they are still getting fresh enquiries.
“We don’t see any slowdown in buying,” said a Singapore-based trader with an international firm.
Source: Reuters (Reporting by Dominique Patton and Ningwei Qin in Beijing and Naveen Thukral in Singapore; Editing by Kim Coghill)