Robust China Imports Upside Risks To Grain Prices


BMI View: Grains imports from China will accelerate in 2013/14, as international prices remain relatively low, while domestic prices are unlikely to retreat from their highs, buoyed by robust demand and increasing procurement prices for state reserves. This poses upside risks to grain prices in the short term, especially to wheat. Ultimately, due to the weakness recorded since H213, we forecast both wheat and corn prices to average significantly lower in 2014.

Wheat: Durable Import Spree

China's wheat imports reached a spectacular record high of 1.3mn tonnes in October, up 273% y-o-y due to increasingly attractive import prices and because bad weather damaged the wheat crop this season. The government may be forced to release grain from stockpiles and ask state-owned companies to import more wheat in order to ease domestic prices, which will keep wheat imports historically elevated in the coming months. Wheat prices in China continue to hover at record levels, at CNY2,550/tonne in Henan, up 9.9% y-o-y and more than double the CBOT wheat prices. More specifically, demand for high-quality wheat will be particularly acute, given the damage to the domestic crop. Total imports for 2014 could come in close to full wheat low-tariff import quota levels set at 9.6mn tonnes, compared with 3.0mn tonnes imported in 2012/13 and to the 2002/03-2011/12 yearly average of 1.8mn tonnes.

More Imports Coming
Wheat - China Henan Wheat/CBOT Wheat Price Ratio (RHS) & China Wheat Imports ('000 tonnes)

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Sector: Commodities