Chinese Wheat Exports Surge, but Future Uncertain
Despite the smallest crop in 15 years, Chinese feed-quality wheat exports have expanded as regional needs strengthen.
As recently as the mid-1990’s, China was one of the world’s largest wheat importers with annual import volumes sometimes exceeding 10 million tons. A string of record harvests during the latter half of that decade, and the build-up of massive wheat stockpiles, however, enabled China to emerge as a regional supplier of low-quality wheat. In 2000/2001, China became a net exporter for the first time. Since then, export volumes have tripled from around 500,000 tons a year to a record of 1.7 million tons last year. Most of these exports consisted of low-quality wheat to be used as livestock feed. South Korea has been the largest buyer, with the Philippines and Vietnam the other major destinations. In addition, China exports about 400,000 tons of wheat flour annually, primarily to Hong Kong and Indonesia.
Regional need for Chinese wheat is strong because of two major factors: the global scarcity of feed-quality wheat and skyrocketing Pacific freight rates.
Last year, Asian markets imported large quantities of cheap, low-quality wheat for feed from nontraditional exporters such as Russia, Ukraine, and India. This year, however, poor crops in those supplying countries are leading to severely curtailed exports, and the dearth of low-quality wheat has pushed up prices. Therefore, demand for Chinese wheat in these Asian markets has intensified. South Korea last year imported over half a million tons from Ukraine but, with this wheat now unavailable, has turned increasingly to China to fill domestic needs. The Philippines - which imported the majority of its wheat used for feeding from India last year - has also stepped up purchases from China.
High Pacific freight rates and a shortage of large vessels are also encouraging Asian importers to try to source from nearby suppliers. Freight rates from the U.S. Gulf to Korea are nearly double last year’s level, with most of this increase coming in the last few months. Although rates from China are also higher, the shorter distance and smaller cargo size adds to China’s cost advantage.
While Chinese wheat shipments have been brisk, the tightening of exportable supplies makes the maintenance of these levels uncertain. In fact, recently there have been reports of a slowdown in new offers for sale. If China begins to limit exports, this will exacerbate the low-quality wheat shortage in Asia, and could open more opportunities for U.S. corn to these markets.
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