China wants corn, soybeans as livestock feed to produce meat for huge population
China is the largest import buyer of both soybeans and corn in the world. Last year it imported 97 million tonnes of soybeans and 20 million tonnes of corn.
For most of the last decade, selling agricultural commodities to China has been like feeding meat to a hungry lion. The emerging issue is that recently there have been signs of distress in some aspects of the Chinese economy, and each time that the markets receive troubling news out of China, commodity futures prices slide as the market wonders if that hungry lion is starting to get full.
The rate of growth in China’s economy has slowed over the past couple of years. China’s GDP growth rate was 8.1 % in 2021. During their most strict period of lock downs in 2022, the GDP growth rate fell to 3 %. As the restrictions loosened in late 2022, and things returned to normal, 2023’s forecasted GDP growth was expected to be 6.3 %, but due to a series of poorer than expected results, this year’s GDP growth for China currently sits at 5.5 %, a bit of a disappointment for such a robust economy.
We’re not “China-bashing” here. While a 3 % economic growth rate is perhaps disappointing for China based on the market’s expectations it is tremendously better than Canada’s. If you look at Canada’s real GDP growth so far in 2023, we’re at 0.6%. (Real GDP reflects economic growth corrected for inflation, which really just confirms that Canadians are just using more dollars to do essentially the same things.) China’s “disappointing” 5.5 % economic growth rate is still 9 times better than Canada’s current position.
One of the biggest engines which powered China’s truly impressive economic growth over the past 40 years has been property development. As the country has urbanized and industrialized the construction of housing, highways, commercial/industrial properties, and municipal infrastructure, it has created an enormous amount of jobs, wealth, and spending. In recent years however, there are signs that this portion of the Chinese economy is starting to cool off. China has both an aging population and a low birth rate, neither of which are good for creating housing demand. In recent months we’ve seen China’s two largest property development firms, Country Garden and Evergrande make the news headlines over debt default concerns. China’s economy is too big and too strong to think that a setback in their housing sector could lead to the collapse of their markets, but it has certainly caught the eye of global market watchers when one of their economic engines sputters.
The good news about being in agriculture is that food demand is the last thing to decline. If you were an exporter of steel, lumber, or other building materials into China, and slowdown in their construction sector would result in an immediate drop in demand for those commodities. The corn and soybeans which are exported to China are used primarily in livestock feeds to produce meat for Chinese consumers, so unless the economy slow down in China was so severe that people chose to eat less food or switch to cheaper foods, grain markets should be insulated from the impact.
The challenge for us as farmers, and marketers of the crops which we produce, is that despite the fact that small adjustments in economic indicators should not impact food demand, they have become connected. Take for example, July 17 when China’s second quarter GDP results were released. Although the market has widely expected to see growth of about 2.2 %, the report only came out at 0.8 % and Chicago soybean futures prices dropped. In that single trading session, CME November soybeans dropped 19 cents from the day’s high and with a slight recovery closed down 7 cents.
The same thing occurred when China’s industrial output was reported on August 15. The report showed a 3.7 % increase year over year in Industrial output, but with the market expecting to see 4.4 % following July’s 4.4 % increase. The slightly disappointing industrial output numbers sent soybean futures toppling from $13.17 to $13.05.
On both occasions nothing really important happened in the soybean business those days except that the country which is the biggest global purchaser of soybeans had some poorer than expected economic news.
We don’t want to get bogged down in debating whether or not the size of the commodity price impact resulting from Chinese economic data is appropriate. We simply need to respect that fact that it exists. While it’s true that bad news can be detrimental to grain futures values, it stands to reason that good news will also be supportive to soybean and corn prices. It is completely believable that if we get better than expected Chinese factory output data, (or some similar economic indicator), that Chicago grain futures prices will bounce. I am enough of an optimist to believe that we will see some strong news, and that we can use those events as selling opportunities for crops grown on Ontario farms.
Steve Kell is a Simcoe County crop farmer and handles grain merchandizing for Kell Grain, with elevators in Belleville and Gilford.