Crop shifts in China may affect world wheat market
The rapid increase in China’s consumption of both corn and soybeans is due, in part, to a growing middle class that is already larger than the entire U.S. population. Greater disposable wealth has resulted in more animal protein in the Chinese diet, meaning larger livestock herds that require a lot more feed grain. Will wheat, and even rice for that matter, get lost in the mix?
From the outside, it is hard to imagine the government would allow that to happen. The Chinese government is most concerned with securing the food supply and keeping consumer prices manageable. Therefore, it tries to ensure that domestic production combined with reserve stocks of food grains (wheat, rice and corn) are always sufficient to meet domestic food demand. The government uses price guarantees as an incentive for local producers to plant these food grains for a steady food supply. Conversely, the government has allowed increasing imports of soybeans to meet feed demand.
The government’s priority to preserve wheat production is evidenced by stronger price supports for wheat relative to rice in recent years. Albeit slower than corn, Chinese wheat consumption grew a significant 17 percent in the past 10 years to 122 MMT and is now a close second to rice consumption at 143 MMT. In 2012/13, an estimated 82 percent of total Chinese wheat use will be for human consumption, compared to just 31 percent of corn. For this reason, the government could be more concerned about maintaining wheat planted area and production levels than that of corn. But again, there must be a limit to potential wheat production. What happens when consumption rises significantly above that threshold? If wheat consumption continues to grow at the same pace, China will have to address this situation at some point in the future.