World Food Bills Set to Keep Rising on China’s Crop-Buying Binge
(Bloomberg) -- China’s ravenous appetite for crops is further tightening global grain supplies and setting the stage for a prolonged rally in food costs.
A United Nations index of food prices jumped again last month to a fresh six-year high, with grains near the forefront of the advance as China buys huge amounts to feed its hog herds. The stronger-than-expected demand prompted the UN to double its outlook for Chinese corn imports and make a “massive” downgrade to its reserves, revising supply estimates for the past several seasons.
The world is contending with tightening supplies of staple commodities as the coronavirus pandemic hurts incomes and worsens global hunger. Countries including Turkey, Kenya and Brazil are facing rapid food inflation, and top wheat exporter Russia is putting restrictions on overseas sales in a bid to tame domestic bread costs.
“Prices are set to get firmer and the uncertainty probably continues in major food markets,” Abdolreza Abbassian, senior economist at the UN’s Food & Agriculture Organization, said by phone.
China’s grain-buying binge is being driven by a strong recovery of its pig herds that were hit by a deadly disease, and its trade deal commitments to boost U.S. farm purchases. Beijing has also largely emptied its state corn reserves in recent years, leading to growing grain deficits and buyers scooping up alternative supplies, including wheat and barley.
The Asian nation booked 6 million tons of corn from the U.S. last week alone and has also bought vast amounts of soy, barley and meat from around the world. The FAO raised its estimate of China’s corn imports to 20 million tons this season, and agribusiness giant Archer-Daniels-Midland Co. has pegged purchases even higher.
The flurry of U.S. sales made supplies “incontrovertibly tight” early in the season, Rabobank said. Rains in Brazil, another key shipper, are also bogging down harvests of soy, delaying planting of the corn crop that typically follows.
Crop futures are trading near multiyear highs and the FAO expects a measure of grain reserves relative to demand to drop to its lowest in seven years this season. Moves by Russia and Argentina to limit crop shipments have exacerbated the price rally, the agency said in a report.
It’s not just grain prices that are rising. Vegetable-oil costs tracked by the FAO surged to an eight-year high last month on smaller palm crops in Indonesia and Malaysia, while sugar, meat and dairy also became more expensive.
Still, better harvests ahead may help quell concerns, with Brazil and Argentina set to collect crops soon and early conditions in Europe faring well for wheat. Improvements in the pandemic as vaccines get rolled out could also ease supply-chain disruptions and curtail the need for countries to hoard food.
“We are very much at the mercy of the final crop situation in the Southern Hemisphere and to what extent that could keep prices a little bit more under control,” Abbassian said. “Unexpected large corn purchases like those of past weeks could have unsettling impacts for global food markets, so they need to be monitored closely.”
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