China Food Crisis? Rising Domestic Prices And Large Import Purchases Send A Signal

Rising demand, floods, insect infestations, and rumors of spoiled inventories are all contributing to China’s developing food related woes.

China has a food problem. To a nation whose leaders are old enough to have been directly impacted by The Great Famine, the seriousness of food shortages cannot be overestimated. China’s burgeoning population, growing industrial economy, and expanding culture of consumerism are all contributing to a steady rise in demand for agricultural products.

But agricultural production, lest anyone forget, is subject to the biblical forces of floods, fire, pestilence, and a host of other variables, some of which are right now upsetting China’s delicate food stability. The world’s most populous nation will certainly not run out of food, but prices are rising and hints of tightening supplies are beginning to appear. Things may get worse before they get better.

Three headline issues are challenging China right now: floods, pestilence, and inventory problems.

Flooding Threatens Rice, Wheat, and Other Crops

Above average rainfall and rising floodwaters are not just threatening to compromise China’s gargantuan Three Gorges Dam; rain and flooding are already disrupting rice, wheat and other crop production in the provinces all along the entire Yangtze River.

Perhaps this is why China, which holds just over half of the world’s wheat inventories and is the globe’s second largest producer of wheat (behind the European Union), has already imported more wheat in the first half of 2020 than it has in the first half of any year in the past decade. In the month of June alone, China’s single month import volume of wheat from all sources was the highest in seven years.

Inventory Problems and Insect Infestations Threaten Corn

According to the USDA, China is not only the world’ second largest corn producer (behind the United States), it will also hold a full sixty five percent of the world’s corn inventories at the end of this crop year. But last week press reports emerged citing the poor quality in some state owned corn inventories, some of which are years old. The reports coincided with two large Chinese purchases of corn from the United States, one of which was its largest purchase ever (1.76 million metric tons or 69 million bushels).

Furthermore, corn prices in China have risen to 5 year highs even though China has recently sold more than 1.4 billion bushels of corn out of state reserves, which would indicate there is a definite issue of some sort with China’s corn supply. The USDA’s Foreign Agricultural Service points to an unusually early and intense infestation of Fall Army Worm in June as the likely cause of China’s current corn angst.

Rising Demand

It is worth noting that year-to-date China is on pace to make its highest rate of US soybean purchases since 2014, and China’s June imports of soybeans from Brazil were up a staggering 91% from the year prior. China is aggressively buying soybeans and soybean products to feed its expanding swine herd, the world’s largest. In fact, the USDA projects that China will import from all sources a record total amount of soybeans next year.

Overall, the past few months have seen China increase its imports of pork, soybeans, soymeal, wheat, corn, sorghum and prepared/frozen foods from the United States and elsewhere. China can’t feed itself; it needs the world’s help, especially if its domestic production and inventories are compromised.

It’s too early to gauge the ultimate severity of China’s total food woes, and it’s highly unlikely that the ripple effects of China’s food issues will cascade through the global food chain, but right now Chinese leadership has food security as a top concern.

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