When the Phase One trade deal was announced earlier this year, many in the trade were skeptical that China would come even close to meeting the obligations that they agreed to. It looks like they knew exactly what they were doing when they signed the deal. By reaching an agreement with Trump, they were able to slow the escalation of tariffs, but as for the buying commitments, it is looking like they committed to buying products that they were needing/going to buy even without the deal. They have been aggressive buying U.S. beans lately, which was expected, but the corn buying spree the past few weeks has been a surprise.
China has bought 3.117 MMT of US corn for the 20/21 marketing year. It is anticipated that these purchases will be shipped out by the end of the calendar year. We heard reports that China was pricing additional corn for delivery in the first quarter of 2021 this week. The U.S. has shipped China .534 MMT so far in the 19/20 marketing year, and another .824 MMT is on the old-crop books yet to be shipped. We estimate that the U.S. and Ukraine have sold China 5.98 MMT of corn, and this number might exceed 6.5 MMT if the U.S. gets all the committed old crop shipped by the end of the marketing year on Aug. 31, 2020.
We believe the realization of rising domestic corn demand combined with the extended drawdown in old crop reserve stocks to near deficit levels has finally reached a point where China must come back into the international corn market as a buyer. China has likely sold 28 to 30 MMT of corn out of their state reserves to control food inflation. If they keep selling at the current pace, they could be out of stocks by September. Estimates are that the Chinese production to consumption deficit ranges from 14 to 30 MMT. China has been buying roughly 2-5 MMT of corn a year, mostly from the Ukraine. The increase in purchases to 5.45 MMT this year seems to be an indication that the game has changed in recent weeks, and imports could jump to 7-10 MMT this year.
Food security and safety in China has become a big concern recently. After ASF devastated the domestic pork supply and food prices skyrocketed, the Chinese were forced to import massive volumes of pork to offset the lost domestic production and bring down food prices. When COVID-19 ran rampant through the country, Chinese consumers’ hoarded bags of rice and flour supplies ran short despite an abundant supply of wheat. The result of shortages and higher prices has consumers in China questioning the reliability of the food supply, which is putting pressure on the government to make sure they have a stable supply of food and control food prices.
We believe that the net effect of this will be China will continue to be a buyer of US beans but potentially even more exciting, a long-term buyer of U.S. corn.