Will Chinese Demand Grow, Stabilize or Drop?

Greetings from an exceptionally hot and steamy Midwest! We hit 100 F (38 C) in the Chicago area on Monday and will see close to the same Tuesday. However, by the end of the week a strong cold front is expected to drop temperatures by 20 to 30+ degrees across the Midwest. Believe it or not, sounds like morning temperatures will have US farmers grabbing a jacket (I’m not ready for that yet!) by the weekend, with lows dipping into the 40s F (4 C).

A few weeks ago I sat in on a presentation by economists at Rabo AgriFinance at the Farm Progress Show. Sterling Liddell, Rabo’s VP Food and Agribusiness Research, spoke to a group of farmers, industry leaders and media about China’s growth and expectations for demand.

He said the best way to gauge Chinese economic growth is not through official government efforts, but by looking at indicators like energy usage increases. China’s at about 5 per cent growth, which indicates that they are growing. But they are not growing at the same pace they have been over the last three years, when increases were closer to 8 to 10 per cent. So China is growing, just not as quickly as they were in the past.

But what does that mean for agriculture and crops?

“China is a wild card because they’re not always going to function as you would expect the market to drive them. This year, China has had a number of logistics issues,” Liddell said. “We know that they had a large corn crop last year that was stored outside in a very wet condition. They have had extensive spoilage, and this is creating some additional demand for grain. We anticipate China will import about 7 million to 10 million tons of corn.”

Also to consider is the confinement of China’s livestock herd. The Chinese central government plans to take their hog herd from a 70 per cent backyard industry to a 70 per cent confined industry within the next three years.

He describes these operations as 1,000 head confinements in smaller buildings. Liddell expects this will be a huge hurdle, but one that will continue to draw both soybeans and corn out of the global market.

“Our expectation is that China will continue to have demand, and they’ll continue to need additional corn at least through the next three years,” he said. “I don’t want to say regardless of economic growth, but it is a little bit apathetic about economic growth because the plan of the central government is to enforce making China’s agriculture much more automated and efficient. We’re likely to see continued growth there.”

Click here to learn more from Sterling Liddell about China's strategy to feed its growing population, which includes efforts to produce more pork, corn and rice on its own.

Have a great week!