Chinese growth may transform global markets

http://ceconomy.blogspot.com/

Competition from Chinese imports is a major challenge for many U.S. industries. For agricultural products, however, U.S. exports to China far exceed U.S. imports from China. Future developments in Chinese markets will have big implications for U.S. and world food markets.

Last year, for the first time, China became the No. 1 importer of U.S. agricultural products. Those sales are especially important to Missouri. Soybeans are grown on more acres in Missouri than any other crop, and China is the largest foreign market for U.S. soybeans by far. China also is a major importer of cotton and a number of other farm products.

Growth in export sales to China is a major reason why soybean prices are much higher today than they were just a few years ago. Imported soybeans are crushed to make soybean meal, a livestock feed high in protein, and vegetable oil.

As incomes rise in China, people are eating more meat and dairy products. That means more hogs, cattle, chickens and fish and more demand for soybean meal and corn to feed all those animals. Consumption of vegetable oil and many other foods also has increased in recent years, while consumption of basic staples such as rice has changed very little.

For many years, people have predicted China would become a major importer of corn and other grains. The argument was that rapid increases in feed demand from the growing livestock sector would soon outstrip the ability of China to increase its domestic grain production.

While Chinese soybean imports have increased more rapidly than almost anyone thought possible, China has not yet become a major importer of corn or other grains.

So far, at least, the growth in Chinese grain production has largely kept up with growing demand. Over the past 10 years, for example, Chinese corn production has increased by 68 percent, according to the latest USDA estimates.

China has been able to increase its corn production by increasing both the amount of land planted to corn and the amount of corn harvested per acre. Future growth in the area devoted to corn production is likely to slow. That means yields will have to grow more rapidly, the rate of growth in corn consumption will need to slow or the country will have to sharply increase its imports of corn.

China already has transformed world markets for soybeans, resulting in higher prices for farmers and consumers and contributing to the expansion of land used for crop production in Brazil and other countries. If China also becomes a major importer of corn, it could have similar impacts on world grain markets. For example, if China imported just 10 percent of the corn it consumes today, it would become the world’s largest importer of corn.

It’s always hazardous to predict what will happen next in Chinese agricultural markets. What is clear, though, is that what happens in China will affect everyone on the planet. What you and I pay for food in the future will be strongly affected by changes in food supply and demand in China.