Peanuts may see record drop in production as government subsidies switch farmers to soybeans
Government efforts to subsidize certain crops, including soybeans, are crowding out investments and production in other crops, according to an article in the state-media outlet Economic Times.
Current estimates are that China’s 2022 peanut planting area will decrease by 18.7% year on year. This would be a historically high drop in the planted area while some estimates also project production down over 20%.
The article notes that “corn and soybeans are competing crops for peanuts. At this stage, the subsidy policy for corn and soybean has formed a certain crowding out of the peanut planting area.”
While the government is looking to increase production in one oilseed crop, this is actually coming at the expense of another oilseed crop. This, in turn, reduces China’s self-sufficiency in peanuts, leading to more imports.
China is the world’s largest peanut producer with 2021/22 output at 18.3 million tons compared to the next largest producer, India, at 8.8 million tons. Given the size of the country’s market, reductions in planting and increasing imports could have a major effect spillover effect on global prices.
Until as recently as 2018/19, China was a net exporter of peanuts. But this has flipped as imports rose from just 27k tons in 2013/14 to estimates of 1.1 million tons in 2022/23.
This has also been reflected in futures prices on the Zhengzhou Commodity Exchange which hit a new all-time high of 11,408 yuan per ton. This is up 38% since the beginning of 2022.
Futures slide despite continued dollar strength
Futures for agricultural products in China slipped across the board on Monday after weakness from the international market overnight despite the fact that the dollar further strengthened against the Chinese renminbi.
Futures prices slipped 1-2% after China urged smooth grain exports out of the Black Sea region last Friday as part of its proposed “12-point solution” to the war between Ukraine and Russia.
However, the dollar continued to firm with spot onshore rate of USD/CNY hitting 6.97 yuan per dollar, the highest since late December 2022, raising the cost of imports for Chinese buyers.
Futures in China would typically react positively to a stronger dollar as it means higher import costs.
Futures close
