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US and Australia Struggle as China Cancels Wheat Orders

Daniel Kim Views  

Chicago wheat futures prices have fallen by 10% since the start of the year
China cancels order for 504,000 tons of U.S. wheat
Food Security Law to take effect in June
Pressure to curb grain imports increases

Source: Getty Images

Wheat prices have plummeted as China, the world’s largest grain importer, recently canceled large wheat orders from the U.S. and Australia. As tensions escalate with Western countries led by the U.S., China is strengthening its food security, which could lead to increased volatility in global grain prices.

According to a report by Japan’s Nikkei Asia, wheat futures prices on the Chicago Mercantile Exchange are currently trading at around $5.50 per bushel. Although it has slightly increased from the lowest point in three and a half years recorded last month, it is still down about 10% from the beginning of the year.

The fall in wheat prices is due to China’s continuous cancelation of massive wheat import orders. Last month, the U.S. Department of Agriculture announced that China had canceled an order for 504,000 tons of wheat. This accounts for about half of the total U.S. wheat exports to China in 2022 and is the largest cancellation since 1999.

Reuters recently reported that China’s imports of Australian wheat have also been withdrawn or postponed by about 1 million tons. China did not specify the reason for the recent wheat order cancellations. Lu Anwei, a researcher at the Norinchukin Research Institute in Japan, said, “China is trying to avoid expensive wheat import contracts it signed in the past and is trying to repurchase at lower prices.”

China saw an increase in demand for wheat imports last year after floods in Henan province damaged harvests in major wheat-growing areas. In response, Chinese buyers secured large contracts for high-quality wheat from the U.S., Australia, and Canada. However, as global wheat prices fell due to Russia, the world’s largest wheat exporter, experiencing two consecutive years of bumper crops, China canceled many of its existing contracts, deeming them too expensive. Instead, they sourced from France and Kazakhstan. However, Nikkei reported that China did not increase its imports of Russian wheat, which does not meet domestic requirements.

Chinese buyers are known to be sensitive to changes in agricultural product prices. Last spring, they suddenly canceled the purchase of 1.1 million tons of U.S. corn. It was later revealed that this was because they significantly increased imports from Brazil as prices fell due to Brazil’s abundant stocks.

Fundamentally, the Chinese government’s focus on food security is cited as the reason for the order cancellations. The Chinese government has been focusing more on food security since last year due to soaring prices and tensions with the U.S. In June, it plans to enforce the Food Security Law to strengthen domestic grain production and diversify imports.

According to Nikkei, China is particularly aiming to be completely self-sufficient in wheat and rice, so the pressure to curb imports of those grains is greater than that of corn and other grains used for animal feed. Li Xuelian, a senior analyst at the Marubeni Research Institute, said, “There is a high possibility that China’s move to curb grain imports will continue in the medium to long term.”

Daniel Kim
content@viewusglobal.com

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