Chart of the Day – China wholesale market price update
Chinese importers seek barley, sorghum cargoes amid high corn prices
China’s grain importers have turned their buying interest from corn to barley and sorghum as prices of the main feed ingredient remained strong.
At the same time, domestic wheat price lost its competitiveness against corn after strong demand for substitution last year boosted prices.
Several private and state grain importers in China are exploring the possibility to buy barley and sorghum from either Ukraine or the US, sources told Sitonia Consulting.
CFR China prices for Q3 2022 shipment of Ukrainian corn are offered at $350/ton, according to trade sources.
But given the whopping 65% import tax for corn imports without government quota, the after-tax cost could reach 3,656 yuan/ton, which is significantly above the domestic price of 2,600 yuan/ton for corn.
International barley prices are noticeably cheaper than corn with CFR China price for French barley offered at around $335/ton. China’s import tax for barley is only 3%.
Barley and sorghum can be imported into China without government quota whereas corn and wheat imports require it, but the majority of quota each year is given to state-owned major Cofco.
Importers are looking for barley and sorghum cargoes on better demand as domestic animal feed producers gradually cut their use of wheat for corn replacement as wheat prices are nearly at par with corn prices in China.
When wheat prices were significantly cheaper than corn in 2021, feed producers substituted about 30 million tons of corn with wheat.
More official emphasis on food security
The state media People’s Daily published a lead story on Friday about Xi reemphasizing the importance of self-sufficiency in agricultural production.
Those key measures include:
- Stabilize grain output, particularly through better seeds and better technology
- Maintain the current area used for agriculture, improve the quality of farmland, and prevent agricultural land from being shifted to other uses
- Support farmers through subsidies, expanded crop insurance programs, and other government policies
These measure have been mentioned several times before, but the fact that they are all laid out in a lengthy piece as the top story in People’s Daily shows the increased importance the government is placing on them.
Specifically, the piece also highlighted the need to stabilize and strengthen subsidies for farmers, including “appropriately increase the minimum purchase price of wheat and rice, and improve the subsidies for corn and soybean producers”.
Lastly, the topic of trade or imports was not mentioned in the piece.
Many government-backed pieces about agriculture policy are heavily focused on self-sufficiency, but also tend to mention “moderate” imports.
In contrast, this piece was entirely focused on changes in domestic policy to increase agricultural output.
More restaurants hike prices as inflation bites
McDonalds and KFC in China have announced price increases recently following similar calls from Starbucks and other coffee chains earlier this week.
Prices of certain items at McDonalds are rising between 0.5 and 2 yuan and KFC said it would be rising prices in some regions as well.
Food inflation in China has been relatively tame at a time when other countries are experiencing high levels of inflation.
Much of this is due to pork prices falling sharply over the past year, which more than offset higher vegetable and fruit prices in China, dragging the overall food inflation lower.
However, many companies from instant noodle makers, condiment producers, and now fast-food companies are raising prices in 2022 due to higher input and operating costs.
Wheat prices shoot higher amid robust auction demand
Wheat prices continued to rise sharply in smaller regional auctions on Thursday. An auction of 65,000 tons in Shandong province sold 98.5% of its wheat offer to the market, and the highest price paid was 2,950 yuan/ton ($466 USD/ton).
These strong auction results triggered price hikes across many locations with several flour and noodle processors in the province raising their bids in response.
Some processors in Shandong increased their bids by 2-5%, and one flour miller in the neighboring Henan province raised their bids 7% to 2,950 yuan/ton ($466 USD/ton) in line with the highest auction paid in Shandong.
There were also smaller auctions in other provinces yesterday with offer sizes ranging from 1,000-30,000 tons and were sold entirely to the market.