China continues to cancel orders, will wheat prices continue to fall?

However, risks to the global supply outlook remain…

Wheat prices "follow" China's demand

China is a major player in the world wheat market, being the top producer and also the number one importer. It mainly buys wheat from major producers such as Australia, France, Canada and the United States.

China's wheat imports in 2023 - 2024

It is therefore not surprising that China’s moves in the international trade market often affect wheat price trends. Late last year, the country unexpectedly placed a series of orders for US soft red winter wheat (SWR) due to heavy rains affecting its domestic crop. These orders are causing the current price slump.

However, China then continuously canceled wheat orders from the US that it had previously purchased, totaling 504,000 tons, the largest volume recorded by the US Department of Agriculture (USDA) since 1999.

The world's largest grain importer has also canceled a series of orders from other countries. According to the agriculture office FranceAgriMer, grain traders said China has canceled some purchases of French wheat. In addition, about 1 million tons of Australian wheat has also been canceled and delayed by Beijing.

Why is China canceling orders en masse?

China’s mass cancellation of wheat orders is clearly unusual. According to Pham Quang Anh, Director of the Vietnam Commodity News Center, there are three main reasons for this move.

Mr. Pham Quang Anh, Director of Vietnam Commodity News Center

First, the world wheat supply is relatively abundant at the moment. Unlike two years ago, wheat exports from the Black Sea region are going well. Ukraine’s shipping industry has also recovered and adapted after the end of the Black Sea agreement.

Meanwhile, cheap supplies from Russia have also flooded the market as the country is pushing to sell off its previous year’s stockpiles to free up space for this year’s bumper harvest. This has made China’s supply choices much more diverse at the moment, no longer tied to a few specific countries as in the past.

Second, wheat prices are falling sharply compared to last year. After peaking in 2022, wheat prices have fallen more than 60% from their peak. Since the beginning of 2024, wheat has continued to fall more than 14%, reaching its lowest level since August 2020. The sharp price drop makes the cost of contract compensation even lower than placing new orders at current low prices. This has prompted Chinese importers to cancel old orders purchased at high prices from the US, France and Australia.

Wheat price developments over the past two years

Third, China’s domestic supply is also high while demand is low. Although the country’s wheat crop suffered some damage from bad weather last year, overall production remains stable. In its March World Agricultural Supply and Demand Report (WASDE), the USDA maintained its forecast for China’s 2024/25 wheat production at approximately 136.6 million tonnes. However, the ongoing difficulties in the pig industry have limited the market demand for animal feed and affected businesses’ decisions to import raw materials.

Temporary needs are no longer the deciding factor.

While China’s moves have dampened demand in the short term, the wheat market may still face supply risks going forward. In its March WASDE report, the USDA lowered its estimate of global wheat ending stocks in 2023/24 to 258.83 million tonnes, a fourth consecutive annual decline and the lowest in eight years.

The agency also said crops in the European Union had been affected by heavy rains during the planting period. In France, the EU's biggest exporter, wheat quality was assessed to be much lower than the same period last year and the lowest since 2020.

World wheat stocks

In addition, the outlook for the US crop, which is set to be planted in the next month, is also not very optimistic for the world's second-largest exporter. At the Agricultural Outlook Forum 2024, the USDA lowered its forecast for US wheat plantings this year to 46 million acres, down 5.2% from last year. Experts say the sharp price decline has prompted farmers to consider reducing the size of their crops and switching to more profitable crops.

In addition to the uncertainty surrounding global supplies, geopolitical risks could also be a factor in the rebound. Ukraine said late last week that Russia had launched airstrikes on the Black Sea port of Odessa, destroying several buildings and damaging businesses. If the situation persists, grain exports from one of Ukraine’s largest deepwater ports could be affected, potentially helping wheat recover.

“In general, in the short term, wheat prices may still face pressure from China’s mass purchase cancellations. However, in the global context, the supply outlook still has many potential risks when geopolitical tensions break out in important production areas, as well as policies to adjust production scale of important exporting countries,” Mr. Quang Anh assessed.

Source: https://congthuong.vn/trung-quoc-lien-tuc-huy-cac-don-hang-gia-lua-mi-se-tiep-tuc-giam-sau-309894.html