USDA: Weather increases feed wheat use in China, tariffs shift import source

By Aerin Einstein-Curtis contact

- Last updated on GMT

© GettyImages/ seregalsv
© GettyImages/ seregalsv
Feed wheat will likely replace corn to some extent in feed rations in China as damaged wheat enters the market and tariffs on US feed grains both bump the price and shift origination of imports, says analyst.

The US Department of Agriculture’s (USDA) Foreign Agricultural Service (FAS) released details of China’s expected feed grain use, production and trade in GAIN report​.

Total grain production in China for the 2018/19 marketing year is expected to decrease based, in part, on poor weather conditions and changes to trade policy, said the agricultural attaché.

“In addition to escalating trade tensions, China’s leadership is swiftly reshaping the value chain and market structure for grain and feed products with long-term implications.

“Weather-related impacts and China’s new food safety regulations will direct low quality domestic wheat supplies from MY2018/19 to displace domestic corn and imported sorghum and barley for feed use."

Corn and wheat production

Corn production for the 2018/19 marketing year is forecast to be about 222m tons, a drop of about 1.3% from earlier expectations, the attaché said. The production decline stems from cool weather and drought conditions.

“In parts of Jilin, Liaoning, and Inner Mongolia provinces, drought conditions in late May and early June restricted planting on about 233,333 hectares and caused emergence rates to fall to less than 50% of normal on about 580,000 hectares,”​ he said. “Some industry analysts estimate that dry weather in the region will lower production by as much as 10m tons from their May MY2018/19 forecasts, due to prevented planting and low yields.”

The area to be harvested also shrank slightly from previous estimates, but remains larger than the production area in 2017/18, he said. “Despite government directives to expand soybean planted area, the economics of producer planting decisions in North East China continue to favor corn,”​ he added.

Wheat production is expected to be about 126m tons in 2018/19 – a decrease of 3m tons from earlier predictions – and some estimates have overall production falling up to 20%, the attaché said. The winter wheat crop has faced quality challenges from winterkill, drought, sprouting and disease.

Harvested area is down by almost 90,000 hectares, he said. “Industry sources report that in the worst cases, yield is expected to fall to 5.3 to 6.0 tons per hectare, about 30 to 33% below normal,”​ he added.

Swapping to feed wheat

Overall corn consumption is anticipated to drop to 248m tons, as feed use lowers, said the attaché. Food and industrial use is expected to grow as corn processing operations expand.

“MY2018/19 feed and residual use is forecast at 169m tons, down 3m tons from USDA’s June estimate, unchanged from Post’s March Annual on greater substitution of sprouted wheat for corn feed use,”​ he said.

Often swine feed is manufactured with about 55-60% corn, 18-20% soybean or protein meal, 5% DDGS, 5% wheat bran, 3% rice program and less than 1% amino acids, he said. Livestock feed can include up to 65% corn, but sorghum, wheat and barley are also used depending on price.

Wheat consumption is expected to increase by about 2m tons based on increased use in feed, he said. “MY2018/19 feed use is raised to 17m tons, up 2m tons from USDA’s June estimate, and up 3.5m tons from Post’s March Annual estimate, on plentiful supplies of feed-quality wheat, and greater substitution of imported feed grains,”​ he added.

Wheat is typically too expensive to use as a feed grain, he said. “As China’s hog prices fall to eight-year lows and imported feed grains are not price competitive, plentiful supplies of feed-quality wheat are attractively priced.”

Domestic corn prices have been increasing and feed mills have been looking to alternative grains, he said. About 6m tons of low-priced, sprouted wheat are anticipated to enter the feed grain market.

Additionally, although feed mill production rates have been low, industrial output is reported to be more than 200m tons in 2017/18, he said. The output makes “China the world’s largest feed producer for seven consecutive years.”

Shifting from trade with the US

China’s corn imports in 2018/19 are forecast to be about 5m tons, the attaché said. Government policies have been supporting consumption and using old-crop inventories, which would allow for additional imports.

Corn import restrictions are expected to remain in place at 7.24m tons, he said. Imports for 2017/18 are estimated to have dropped to 3.5m tons, based on domestic sales and a drop in buyer confidence for imported grains.

US corn was price competitive in mid-June, he said. However, the addition of the 25% tariff on US-origin corn imports increased prices.

“Considering current prices, the duty-paid and landed price of US corn at ports in South China will jump from around $250 per ton a few weeks ago to nearly $300 per ton today,” ​the attaché said. “As a result, US corn imports are expected to lose competitiveness to Ukrainian and domestic supplies. Additionally, industry sources report that trade uncertainty has raised the risk premium for US corn.”

Corn export in 2018/19 are anticipated to be about 50,000 tons, he said.

Wheat imports in 2018/19 are projected to be up to about 4.5m tons, he said. Wheat imports in 2017/18 are estimated to be about 4m tons.

Again trade tensions between the US and China have been reducing trade of the grain and little new business has been booked since the second quarter of 2018, he said.

“Formerly steady buyers are concerned that US wheat consignments are too risky to execute,” ​he said. “Industry sources report that due to trade tensions, buyers are seeking to expand imports from Black Sea-origins.”

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