China’s massive livestock sector is set to snap up millions of tonnes of wheat from the country’s winter harvest that began this month, extending a run of crop-switching in animal feed and further cooling demand for corn imports.
Corn imports surged last year after a decline in stockpiles and production, pushing up prices and reshaping global grain markets as feed producers and pig farmers scoured the world for supplies.
At the same time, China’s feed sector purchased record volumes of cheaper wheat from the 2020/21 season for use as a substitute for corn, traditionally the main grain in animal rations. “Feed demand for wheat is expected to remain very high in the new crop year, as wheat still has obvious advantages against old corn, based on current prices,” said Li Hongchao, a senior analyst with trade website Myagric.com.
While China caps low-tariff corn imports at 7.2 million tonnes a season, buyers imported a record 11.29 million tonnes in calendar 2020, mainly from the United States, as high domestic prices made imports economical even when paying tariffs.
Feed lots began large-scale wheat substitution from late 2020, effectively easing tight corn supplies and securing domestic feed grain supplies, said Qi Chiming, an analyst with the China National Grain & Oils Information Center (CNGOIC), an official think tank.
The new wheat crop is expected to further dim demand for imports, with CNGOIC predicting a record harvest in 2021 of 136.4 million tonnes.
“We are waiting for the new wheat and will buy whenever there is an opportunity,” said a purchasing manager with a major poultry producer in northern China, who declined to be named as he was not authorized to talk to the media.
The firm started replacing about 15% of corn in feed with wheat earlier this year, and has enough wheat inventories until the end of June.
China is expected to use 36 million tonnes of wheat in feed in the 2021/22 crop year, after using 38 million tonnes in 2020/21, according to CNGOIC.
“Wheat prices are expected to be lower than corn, which gives it obvious advantage to substitute (corn). Feed producers have high enthusiasm to buy the new wheat,” said Qi.
Prices of wheat in Henan province, a top producer, stood at 2,540 yuan ($398.88) per tonne as of Wednesday W-EXWXUZ-GEN, well below the price of corn in the same region at 2,980 yuan per tonne JCI-CORN-ZHZH.
WHEAT FEEDING CONTINUES
The main 2021 wheat harvest began this month in central and southern China and will peak in June when crops in top producing regions including Henan, Shandong, and Jiangsu are gathered.
The quality of some of the new crop in Hubei province, the first major producer to harvest, was hurt by heavy rains, but remains appealing for feed use, industry sources said.
“We have bought some new wheat in Hubei. Quality was not super good, but ok to use in aquaculture feed,” said a purchase manager with a major feed producer in the south.
“Just buy more. For one, there is inflation. Secondly, there is indeed supply shortage with domestic corn,” said the manager, adding that they will continue to buy new wheat to fill any supply gap in July and August before the next corn harvest in the autumn.
To tame rising crop prices, China’s state stockpiler auctioned off 42.95 million tonnes of wheat reserves from last October through early May, up more than 38 million tonnes from the previous year, according to CNGOIC, citing data from the National Grain Trade Center.
The think tank expects China’s grain market tightness to further alleviate.
“There is a lot of wheat. Don’t hoard, or scramble for it. Supplies are sufficient,” CNGOIC’s Qi said. ($1 = 6.3679 Chinese yuan renminbi)