Supply chain risks, rising wheat, and soy buying slows

New covid cases could further disrupt global supply chains
China reported 60 new local covid cases yesterday with 55 in Inner Mongolia, 2 in Heilongjiang, 2 in Yunnan, and 1 in Zhejiang in Ningbo city. The Ningbo situation is notable because the city is the 3rd largest container port in port in the world. Back in August, the Meishan terminal there was shut down due to a single covid case which disrupted global logistics.

Today Ningbo reports they have 5 cases and initiated Level I emergency response and Zhenhai District was locked down. Zhenhai is a major industrial area of Ningbo’s port. The zone is home to nearly 200 chemical plants including the largest oil refinery in China, the largest ABS plastic producer in China, and the largest liquid chemical dock in China.

Health officials in the city have cancelled outbound flights to Beijing, closed scenic spots, KTVs, and stopped all cultural and tourism activities. The city is also doing mass testing with 275,775 people already being tested.  

Wheat price strengthens further amid late planting
Cash wheat prices saw another round of price rises in the major production area of Henan. Many flour mills raised their prices by around 5% with the average price now at 2870 yuan per ton ($451 per ton or $12.26 USD/bushel).

The most recent crop condition data has 24% of the winter wheat crop rated as good or excellent, up from 21% at this time last year, while 75% is rated as normal, down from 78% at this time last year. However, traders are concerned because the winter wheat crop was planted relatively late this year which could increase the risk of freeze damage over the winter.

Many years China is the world’s largest producer of wheat, frequently trading between first and second rank with the EU. Despite the large production, imports have surged in recent years due to strong demand, and the US-China trade deal which required that China improve it’s allocation of import quotas. For further reading, see our piece from last week – Cold weather, changing diet could boost China’s 21/22 wheat imports

Fertilizer production continues to lag
The operating rate of urea fertilizer producers was 65% of capacity in November. This is down 9% m/m and 12% y/y. Companies using gas to produce fertilizer reported running at 64% of capacity, down 4% m/m and down 9% y/y.

Futures moved higher today with the January contract rising 3.7%. The forward is still in backwardation with January priced at 2358 yuan per ton, May at 2176, October at 2099, and November 2087.  For more context, see our report December 3rd report China to ensure stable electricity supply to fertilizer industry, paving ways for new crop planting.

US soybean, corn exports to China stable despite slowing cargo buying
US soybean exports to China for the week ending December 2 reached more than 1.46 million mt, accounting for over 65% of the total volume exported during the week. The cumulative soybean exports from the US in 2021/22 marketing year hit nearly 23.57 million mt as of last week, down 21% year on year.

Corn exports to China from the US totaled 136,500 mt during the same week, representing 18% of the total exported amount. The US has exported nearly 9.38 million mt of corn in this marketing year, down 16% from the previous year.

Moreover, more than 102,500 mt of US sorghum were exported to China last week, which accounted for over 60% of all sorghum exports during the week.

Meanwhile, the USDA announced 130,000 mt of soybeans sold to China on Monday, confirming rumors of major Chinese crushers had snapped up January 2022 shipments from the Pacific Northwest last Friday.

However, the overall pace of Chinese cargo buying has slowed sharply in the past two weeks due to a downside correction of crush margins in China which have shifted into the negative territory for shipments in the first quarter of next year.

Crushers and trading houses in China were on a buying spree in the first half of November, and sufficiently covered their soybean demand for December shipment when margins were at $15-20/mt.