Brazil is the largest exporter of grains to China

RIO DE JANEIRO, BRAZIL – China is a giant in the commodities market, backed by its strong GDP and tremendous purchasing power. It imports 25% of world grain trade volumes, making it the largest grain importer. Therefore, what the country does or encounters in terms of policy, agriculture, events, or unforeseen circumstances generally significantly impacts the grain market, reports BRS Dry Bulk.

China hit record grain imports in 2021, reaching an all-time high of 159 million metric tons (mt) according to AXSMarine, and achieving compound annual growth (CAGR) of 6% from 2015 to 2021.

The largest exporter to China in 2021 was Brazil, with 63.9 million mt of grains, of which 58.2 million mt or 91% of the total is soybeans. Panamax vessels take the dominant share of about 95% of Brazilian soybean exports to China. The U.S. ranks second in this trade, exporting 34 million mt in 2020 and 26 million mt in 2021. 2020 was the year the U.S. and China signed the Phase 1 trade agreement allowing the Asian country to expand purchases of certain U.S. goods and services by US$200 billion for the two-year period from January 1, 2020, to December 31, 2021, of which US$80.1 billion was committed to agricultural purchases. It will explain the solid growth in U.S. grain trade to China in these two years.

The seasonality of China’s grain imports follows similarly to the peak soybean export seasons of Brazil and the U.S. Exports peak between March and May in the South American country, while U.S. soybeans peak between September and November just after harvest.

LONG-TERM OVERLOOK

Fitch forecasts China’s aggregate real trade growth of around 4.8% year-on-year over the 2022-2031 period, driven by economic growth, robust infrastructure development, rising domestic demand, and closer regional integration. Imports of agricultural raw materials are forecast to increase by 3.7% on average over the next five years, implying that China’s dependence on agricultural imports will remain strong.

However, China’s dependence on grain imports could decrease in the longer term. China aims to become more self-sufficient in its food and feed supplies by increasing domestic grain production.

According to a Chinese Academy of Agricultural Sciences report, the area under soybean cultivation in China will increase by 1.4 million hectares this year, production is estimated to increase by 25.8%, and the grain-producing area is estimated to stabilize at 116.7 million hectares over the next decade. By 2031, overall grain performance is expected to increase by 6.4%, soybean by 34.1%, and corn production could reach 324 million metric tons and soybean 35 million tons, ensuring that 88% of the grain is produced in the country.

The above will lead to less reliance on future imports, where imports of most agricultural commodities are expected to decline as early as the next decade, with corn imports falling by 6.5% and soybean imports declining by 1% annually.

China has also been actively and strategically diversifying import origins in recent years, but imports remain fairly concentrated in the U.S. and Australia. Coupled with rising tensions between the US and China, this is likely to lead to further diversification despite the US-China trade agreement, potentially with other participants in the Belt and Road markets. Relations between China and Russia have deepened since 2014, as both countries face growing geopolitical tensions with the US.

China has allowed wheat imports from all regions of Russia under an agreement signed by both sides that went into effect the day Russia invaded Ukraine, allowing Beijing to secure its food supply when global food prices are near 10-year highs.

There is also an incentive to create significant connectivity in Eurasia due to U.S. maritime dominance in the Indo-Pacific region. One could then anticipate some significant changes in grain trade flow dynamics in the coming years as China becomes less reliant on other maritime origins and volumes. However, rail shipments could never match or replace the capacity of maritime shipments. Overall, this could affect the bulk cargo market as volumes and mileage from other origins to the largest grain importer decline, negatively impacting ton-miles.