China’s stealthy shake-up of rice market

CHICAGO: China’s growing influence in the grain and oilseed market has been well covered in recent years, with the country’s increasing share of global corn, soybeans and
(recently) wheat trade exhaustively scrutinized by market trackers.
But less well publicized has been China’s emerging dominance in the rice market, brought about by soaring domestic prices which sparked a wave of import buying lately that has catapulted China from seventh to second in the world rice import rankings and altered the trade flow across Asia of one of the world’s most popular dietary staples.
A massive population and trade surplus has provided the Chinese government with both the motivation and the means to delve into the world’s raw material markets to secure an array of commodity supplies in recent years. Indeed, global commodity trade over the past five to 10 years has largely been defined by the giant tonnages of metals, energy products and crops that flow across the planet to China.
But while China’s presence as a top importer of items such as soybeans and iron ore have become an established ‘fact of life’ over the past decade, the country still has the tendency to disrupt other key markets from time to time whenever its own reserves of that particular commodity fall short of its continually expanding requirements.
The corn market has been subject to such disruption over the last two years as China made rare forays onto the import stage to supplement domestic supplies — even though it is the world’s second largest producer of that crop.
But a more significant disruption may be under way in rice, which is roughly half the size of the corn market and is traditionally a commodity where China is considered to be wholly self sufficient given it is the world’s top producer by a significant margin and reportedly holds more than 40 percent of the world’s reserves.
But it is clear from China’s domestic price trends and commodity import flows so far in 2012 that the country’s rice supplies may not be as abundant as it might like, as of all the grains the country imports the trend in rice purchases has displayed the most significant deviation from the trend seen over the past several years.
The first indication that China’s rice supply situation may not be quite as abundant as official inventory estimates may suggest was when domestic rice prices established and then built on a premium over the rice export prices from nearly all key rice supplier nations.
The price of medium-short milled rice in China has frequently traded above exporter values in recent years, but early-harvest large grain rice has only developed a premium
since 2011, indicating that cost-sensitive Chinese consumers are running out of affordable options when it comes to dietary staples.
But the more dramatic indication that something unusual was afoot in the Chinese rice arena was the country’s aggressive buying spree on the export market since the beginning of the year, and the fact that such buying marked a stark deviation from China’s normal rice import buying patterns seen over the preceding six years.
And China’s importing actions were not just unusual for China itself. The hefty tonnages involved (more than 1.8 million metric tons as of the end of September, and forecast to top 2 million by year-end) served to reshape the global import stage, catapulting China from seventh in world rice import rankings in the 2010/11 crop year to second by the end of 2011/12. The country is projected to solidify its place as the number two rice importer behind Nigeria this year.
The fact that the world’s top rice grower, consumer and inventory holder has now also become the second largest importer of that crop should start to send warning signals to other large rice importers, especially those with little to no production capabilities of their own.
Indeed, China’s aggression on the world crop import market in general should give other potential grain buyers cause for concern, especially in light of China’s already-dominant positions in the corn, wheat and soy markets in recent years.
Time and again Chinese traders have shown an oftentimes intimidating mix of market savvy and aggression designed to replenish domestic inventories of key commodity staples and ensure that the country has the ability to tap into additional supplies in due course should domestic production totals miss the mark.
With China now established as a top-level consumer, importer and/or stock holder of all of the world’s main edible staples, its traders will be perceived to have a competitive advantage on the world crop buying stage due to the sheer tonnages they look to acquire and the frequency with which they do it. At the very least, few other importing nations will relish having to compete with China to secure their own access to food and feed crops
given China’s experience and sophisticated commodity acquisition network.
But this wide reach across the entire grain and oilseed spectrum also provides Chinese grain suppliers with enviable flexibility during periods when the price of one particular crop outpaces others for any particular reason.
Having access to all the major grains allows for the potential ability to substitute — in ‘China-scale’ quantities — one grain staple for another, and could actually set the stage
for a retraction in China’s import purchases of certain crops over time as the country’s grain supply merchants seek to balance and distribute a blend of crop inventories appropriately across the country.
But for the time being China appears to be in a buying mood, and just added close to record-sized amounts of rice to its grocery list.
— Gavin Maguire is a Reuters market analyst. The views expressed are his own.