China has embarked on a buying spree of farm products from the United States this month, but the market reaction has been relatively subdued as global demand uncertainty continues and beneficial rains across the US Midwest support prospects of large corn and soybean harvests this season.
Last Tuesday the United States Department of Agriculture reported that China had purchased 1.762 million metric tonnes (MMT) of corn from US exporters for shipment in the 2020/21 marketing year.
This is the biggest ever Chinese purchase of US corn, surpassing the 1.45MMT acquisition made way back in December 1994.
The transaction is also the fourth highest spot trade for corn ever reported by the USDA and comes hot on the heels of a 1.365MMT old and new crop corn sale to China in the preceding week.
And the USDA's weekly export sales update for the week ended July 9 shows sales of 0.981MMT of old-crop corn and 0.655MMT of new-crop corn, with China the lead buyer.
This brings Chinese purchases of US corn for the 2020/21 season to almost 4MMT and is already the second-largest annual export volume on record behind the 5.15MMT purchased in the 2011/12 marketing year.
Corn ended the week slightly lower on futures markets, despite the run of large purchases by China.
It is quite a bearish market gauge when such good sales news fails to push the market significantly higher.
The story is not bad, rather the market feels that the demand losses due to the COVID-19 pandemic and production increases due to improved weather more than compensate for the increased exports.
It seems the livestock sector in the Middle Kingdom is booming as the country recovers from African swine fever and food consumption returns to normal after the COVID-19 shutdown.
The government sold all of the 4.026MMT of corn put up for auction last week at an average price of 1950 yuan, the highest price in the eight weeks of auctions.
Data released by China's agriculture ministry in June indicated that the sow inventory had increased for eight consecutive months and there had been four successive months of growth in the hog herd. Domestic pork production is forecast to recover 70 per cent of African swine fever losses by years end.
The other big mover is poultry consumption.
Rising imports will meet a lot of that demand, but local production is also growing quickly. China consumed 19MMT of poultry in 2018, but that jumped to 23MMT last year, and the Chinese are expected to eat roughly 25MMT this year.
The expansion in poultry production, together with a recovering swine sector, is boosting China's demand for soybeans.
According to customs data, China imported a record 11.16MMT of soybeans in June, up from 6.51MMT a year ago and up 19pc from 9.38MMT in May.
China's first-half 2020 imports totalled an impressive 45.05MMT, up 18pc year-on-year.
Although most of the recent imports have been from Brazil, China has increased purchases of US soybeans this month.
Last Friday the USDA confirmed sales of 126,000 metric tonnes of US soybeans to unknown destinations - read China.
That trade brought the total sales for the week to 1.5MMT, including around 1MMT to China.
The recent flurry of Chinese contracts is a very positive sign for the 2020-21 marketing year and purchases are tipped to increase as the record pace of South American exports abate due to dwindling supplies.
China needs to fill the gap from August until new crop Brazilian soybeans are available next year and the US shop door is wide open.
China has already bought 4.2MMT of US soybeans for new crop delivery.
That is the highest level of new crop purchases for early July since the 2014/15 season and is well ahead of the 126,000 metric tonne on the books at the same time last year.
Soybean futures firmed in trade on Thursday and Friday to close the week higher, buoyed by the prospect of Chinese crushers ramping up their purchase of US beans and a tighter US balance sheet.
While US wheat trades to China in July have not been as spectacular as the row crops, there have been some robust sales. Early in the month, the USDA reported China had booked 130,000 metric tonne of hard red winter wheat and 190,000 metric tonne of hard red spring wheat.
Then on Wednesday of last week wheat futures exploded to the upside as the funds flipped their positions from net short to net long.
Rumours that China had purchased at least two cargoes of soft red winter wheat proved to be just that, and the market gave back most of the gains in the last two trading sessions of the week.
Unconfirmed trade talk last Friday suggested that China had instead turned their attention south of the equator and purchased eight cargos of new crop Australian standard white wheat for December delivery. Aussie export wheat values closed the week unchanged with the prospect of increased demand offset by good rains in Western Australia.
The spate of US purchases this month has raised conjecture around China's motives. Is this an attempt by Beijing to meet its 2020 obligations under the Phase 1 trade deal in which it pledged to buy US$36.5 billion worth of US agricultural commodities?
Or is this merely opportunistic buying when prices are relatively low?
Have the relations between President Xi Jinping and President Donald Trump soured to such a degree that doubt is now cast over the durability of the trade pact?
China continues to insist they will meet their obligations, but they have a lot of work to do in the last five months of the year amid a hostile political environment.
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