Analysis shows China changing its grain buying tactics as the US market becomes volatile

Strong demand for grains from China set to continue, but it will shift to opportunistic buying when prices soften.

China shook up the US feed grain export market over the last year, purchasing massive quantities of US soybeans, sorghum and corn. With the help of a favorable exchange rate, China increased its purchase from the US to meet feed demand for its rising hog production and to offset reduced supply from Brazil. China’s accelerated demand for grains is expected to continue, although its purchasing patterns are shifting in response to US grain market dynamics.

According to a new report from CoBank’s Knowledge Exchange, the outlook for continued US grain exports to China remains strong, primarily due to its projected growth in pork production and steady demand for feed grains. However, the current US grain run has entered a new phase marked by significant price volatility, and China is leveraging that volatility to its advantage.

“China will remain an active buyer of US grain through at least the 2021-22 marketing year,” said Kenneth Scott Zuckerberg, lead grain and farm supply economist with CoBank. “But the increased volatility in grain prices has led China to shift its buying pattern to wait for price weakness before committing to additional purchases, as well as to contract now for the next marketing year.”

China’s heightened demand resulted in record high grain prices that peaked in May and have since been extremely volatile. A period of elevated price volatility, coupled with an ongoing inverted futures curve, means that grain elevators and merchandisers will require capital discipline and excess liquidity, noted Zuckerberg.

So far in 2021, the US has already exported an eye-popping 57.1 million metric tonns (MMT) of soybeans, corn and grain sorghum to China. That’s a dramatic increase compared to the 15.5 MMT China purchased over the same period in 2020 and 7.9 MMT purchased in 2019. Adding to the momentum, China has already contracted for 10.7 MMT of new crop corn and 3.0 MMT of soybeans to be delivered after harvest and recorded during 2021-22 crop marketing year.

Pig

Tags: China, grain, US, purchase, price volatility