Last week, China added downward pressure to wheat contracts by canceling and postponing purchases from the US and Australia. Despite being the largest wheat producer in the world, China's relevance on the demand side has grown dramatically in recent years due to the increase in domestic consumption.
Given this relevance and recent events, let's update our view of Chinese imports, both for this end of the 23/24 marketing year and for the next one.
Chinese wheat importers have canceled or postponed around 1M mt of cargoes of Australian wheat, according to trade sources. News of the moves came shortly after the US government reported the cancellation of more than 500,000 tons of US wheat exports to China the previous week.
Traders also reported that commercial companies have vacated shipping slots in several Australian ports that were reserved for cargoes bound for China. The country is the biggest buyer of Australian wheat, and probably booked the cargoes four or five months ago, when prices were higher.
Canceling loads is a bearish indicator. Whether they're doing it to buy again more cheaply or because there's less demand, it's still a bearish view on the market. But will these movements continue in the coming months?
Despite the recent cancellations, recent import data points to a strong pace of purchases so far. In the 23/24 crop year, the pace is very similar to the previous crop year, when China imported a record volume of wheat and became the world's largest wheat importer.
Looking at the import estimates for the current season, a slowdown in Chinese purchases is expected, given that China is expected to import 2M mt less than in the previous harvest.
Fig. 1: Cumulative wheat imports - China (M mt)
Despite the lower stock-to-use ratio of recent years, the country still has a much more comfortable situation than most of the top importers, which allows China to postpone its purchases if necessary or interesting.
Fig. 2: Ending stocks and Stock/Use (M mt)
In addition to expectations of higher yields in Russia and the US next season, Chinese production should also be higher than in the 23/24 season, when productivity and quality were heavily impacted by heavy rains at the end of the season.
Despite the slight change in the planted area, current crop conditions are satisfactory. After the strong cold wave in February, which could cause some damage to winter wheat in the advanced stages of development in the south, warm temperatures have returned.
