China faces harvest challenge

There are some years where little happens, and then there is 2022: the war in Ukraine, drought creeping through the US, and now China seemingly facing a huge food production challenge.

China is often quite reserved when it comes to reporting on its crops.

A ‘record crop’ in China is a bit of an in-joke within the industry, as it seems to occur every year.

Earlier this month, however, the Chinese agriculture minister said the winter wheat crop could be the worst in history.

The Chinese government generally promotes a rosy view on domestic food production, so when it says conditions are bad, it’s something to take seriously. In that vein, I thought it was worthwhile diving into the situation and some of the data around China and grains.

While we tend to think of China largely as a large buyer, it is also a very large producer of grains.

During the past five years, China has produced on average 18 per cent of the global wheat crop, or 134 million tonnes (5.5 times Australia’s average production). More than 90 per cent of the Chinese wheat crop is planted in winter.

Therefore, a disaster in the winter wheat crop bodes very poorly for overall production.

Our contacts indicate this season’s acreage will be substantially down.

The lateness of planting is likely to result in yield reductions, which could lead to a substantial downgrade and a move from the ‘record’ levels we typically hear of.

While China is a huge producer of grain, it does not export any substantial volumes (except rice, at 5 per cent of global trade).

Considered the ‘mouth of the world’, China’s big population is now eating a diverse diet: a huge proportion of global consumption.

While China is a significant producer, such huge consumption demand requires large volumes of imports. China is one of the world’s most significant importers across various commodities.

The average volumes imported by China during the past five years are: barley 8.3 million tonnes; corn: 14mt; oats 297,000t; rapeseed/ canola 3mt; soybean 93mt; rice 4mt; sorghum 5.6mt; and wheat 6.5mt.

While those numbers are large, they are the average over five years, and something has changed in China.

There has been a huge increase in wheat imports during the past two years compared with the previous years.

We regularly update on the import volumes into China, as it is an important nation for Australian grain products.

In 2020 and 2021, it imported more than double typical volumes of wheat.

While China didn’t import Australian barley, it has been a willing buyer of Australian wheat.

China has always been an enigma, with solid data on agricultural production being relegated to rumours and whispers.

I had some concerns about the risk of China reverting to prior import levels.

A major problem with the winter crop will likely lead to continued strong imports.

If the Chinese crop is in a terrible state, then the country will have to start eating into its stockpiles.

On paper, China holds 51 per cent of the world wheat stockpile.

China has been hoarding a lot of grain, but I use the term ‘on paper’ as recent import programs may suggest stocks are not as high as the Chinese government or US Department of Agriculture data suggest.

If, as many suspect, the stocks are lower than government numbers claim, this could point to another year of large imports.

If the import program continues, Australia is currently set to be in the front seat, provided Russia doesn’t steal our trade after recent agreements between it and China.

• Andrew Whitelaw is a manager of commodity market insights at Thomas Elder Markets (TEM)