Grain trading between China and the US reaches dizzying heights

China cannot get their hands on enough US grown grain and oilseed following a deal signed between the two trading powers for China to take more US farm produce
A trade deal between the two biggest economies on earth could shuttle exports of our locally grown grain to a less than desirable second tier position

Many local growers have been held up at harvest this season due to continuing rain and have now been gazumped by the US Summer crop harvest that is ahead of normal and now complete.

This grain haul will be getting into the world market prior to our own near record harvest reaching storage silos ready for shipping.

Just what affect this US early harvest has on our overall net price will be clearer over the next few weeks.

But what is clear, the US summer harvest of corn and soybeans is quickly rising in value.

Corn production in the US is up 8% from last year, with a forecast harvest of 373 million tonnes (14.7 billion bushels), while soybean growers are expected to increase their production 20% from 2019, with a forecast harvest of 108 million tonnes (4.27 billion bushels).

This solid harvest came from corn planted across an area estimated at 368 million hectares, up 1% from last year’s total area planted. Soybean area planted came in at 336 million hectares, an increase of 9% over last year.

And contrary to our own currently unstable trading relationship with China, it is that very market that the US crops have been selling into with massive volumes since August 2020.

With a shopping list to feed 1.4 billion people, Chinese buyers have stepped up enthusiastically to buy US grown grain and oilseed, the chosen one to replace the shortfall in a country that simply cannot grow enough food internally to feed its population.

Another factor this time around are the big losses from the Chinese pork market that suffered severe shortages following the outbreak of African Swine Fever in 2019 when the live pig market was almost decimated.

US crops have the advantage here as Chinese pork producers prefer to use US grown soybean as the primary ingredient in their animal feed, and in very substantial volume this time around to help rebuild their pork stock.

US Corn crops looked good throughout the season with production up 8% from last year and tipped to reach a 373 million tonnes harvest

And an added advantage for US growers has been from the “phase one” trade deal signed in January 2020 between China and the US; this deal clearly outlines how China is committed to purchase agricultural products from the US.

With all this clear intent from Chinese buyers, higher prices for US grown crops are almost certain with market experts in the US tipping their Summer crop harvest ready for shipment it will soon ignite a price hike rally for grain and oilseed not seen for several years.

The fundamental demand will stem from China and could even eclipse the available supply that US growers can muster.

The power of more demand than product available has not been an issue in the US as bumper crops have been a feature of the US market for the past eight years, with more than enough to satisfy demand.

Now with the “phase one” trade deal between China and the US it puts into play an unexpected scenario where China may now have to pay a premium for its US corn and soybean purchases.

Backing this predicament for China is the US dollar’s position as the world’s reserve currency and the benchmark pricing mechanism. In addition, the US is the world’s leading producer and exporter of corn and soybeans and as such obviously sets the price.

Up until the “phase one” trade deal signed in January 2020 between China and the US it appeared the market for US grown corn was already well placed.

About a third of the US corn crop was used for feeding cattle, pigs, and poultry in their home market. Where it is estimated it takes 50kg of corn to produce a 1kg corn-fed steak.

This is after a beef steer has eaten all up an estimated 1 tonne of corn and has been raised in a feedlot.

The next third of the corn crop goes towards making ethanol, that in turn is added to petrol as a renewable fuel additive. This cannot be avoided as The Renewable Fuel Standard requires that 10% of petrol to be renewable.

The final third left over from the corn crop is used to feed the US population or exported to other countries for food or livestock breeding.

Prior to the “Phase one” trade deal with China, the US’s biggest trading partners were Mexico, Colombia, South Korea and Japan.

And while US white corn was used as a high-quality food ingredient in Mexico and Colombia. Both Japan and South Korea paid a premium to use US corn to feed and produce poultry and beef.

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