Competition may be heating up big time in one of Canada’s top markets for grain, oilseeds and pulses.
Russian grain exporting company Food Export Trade LLC (FET) signed what is reported to be a US$26 billion contract to supply China with 70 million tonnes of grain, pulses and oilseeds over the next 12 years.
The contract signed in September at the VIII Eastern Economic Forum is between FET, Chinese trading company Noble Home and Chinese logistics company Trans Eurasia (Tianjin) International Logistics, according to a news release on FET’s website.
When combined with a previous contract signed between FET and Chinese state corporation China Chengtong, the volume of Russian grain to be supplied to China reaches 100 million tonnes.
FET is part of the New Land Grain Corridor (NLGC), a US$480 million project comprising FET, Grain Terminal Zabaikalsk, Container Terminal Zabaikalsk and Siberian Grain Project LLC, according to the NLGC website.
The NLGC was launched in 2016 as a project proposed by Russian president Vladimir Putin and supported by Chinese leadership.
Grain in the FET megadeal would be routed through Grain Terminal Zabaikalsk, a grain railway terminal at Russia’s border with China’s Inner Mongolia, according to the website.
The terminal has a transshipment capacity of eight million tonnes per year and storage capacity of 80,000 tonnes. It can accept up to 128,000 grain hopper cars per year.
Grain will be supplied by the corridor’s elevator network, which will have a storage capacity of 1.4 million tonnes per year by 2030.
Russia’s crops will be vying for market share in one of Canada’s top markets for grain, oilseeds and pulses.
China imported $4.93 billion worth of those Canadian crops through the first eight months of 2023, according to Statistics Canada. That ranks second behind the $7.5 billion worth of crops shipped to the United States for that period.
“It is a competitive threat to Canada,” said MarketsFarm analyst Bruce Burnett.
“Obviously the Chinese are looking to diversify their sources.”
Peas are a good case in point. Russia and China signed a phytosanitary agreement in October 2022, paving the way for the import of Russian peas.
Gaurav Jain, an analyst with AgPulse Analytica, is forecasting 1.2 million tonnes of Russian pea exports to China in 2023-24, compared to one million tonnes from Canada.
Russia’s total grain shipments to China were a record 3.5 million tonnes through the first nine months of 2023 compared to 2.2 million tonnes for the whole of 2022, according to Reuters.
The FET news release said the goal of the corridor is to increase grain production in the Far Eastern, Ural and Siberian federal regions.
Burnett said that is worrisome because those districts are climatically similar to the Canadian Prairies and grow many of the same crops, such as spring wheat, canola and peas.
“That is going to be an issue,” he said.
Some analysts are skeptical about the megadeal.
“I doubt it exists,” SovEcon analyst Andrey Sizov said in a recent tweet.
He said the NLGC owns a modest 80,000 tonne storage terminal on the Russia-China border, so the volumes announced in the news release don’t make sense to him.
Burnett also expressed some skepticism about the massive grain volumes and dollar amount contained in the FET announcement.
“A lot of these agreements with China are notional,” he said.
An example is the Phase One agreement between the U.S. and China, where China committed to expanding its purchases of certain U.S. goods and services by US$200 billion over a two-year period.
In the end, it achieved only 58 percent of that commitment, according to the Peterson Institute for International Economics.
Burnett also wonders how Russia will send that much grain to China without driving up prices domestically, resulting in food price inflation at home.
However, he said there is no doubt China is serious about diversifying its sources of food supply.
A prime example is what is happening in the country’s corn market. China approved Brazilian corn for import in late 2022.
Brazilian customs data shows the country shipped 2.4 million tonnes of corn to China in August and another 3.5 million tonnes in September, according to the Dim Sums blog.
It is rapidly displacing U.S. corn in that market.
