China Imports Ag Commodity Deflation

China imported farm commodities at a robust pace during 2015 as Chinese buyers took advantage of bargains on the international market. With imported commodities as much as 40-percent cheaper than Chinese commodities, mills and processors are eager to buy imports even though Chinese markets are swimming in excess supply.

Customs statistics for January through November 2015 reported by China's Ministry of Agriculture show that the volume of imports of most major commodities increased by double-digit percentages last year. Cereal grain imports for the first 11 months of 2015 totaled 30 million metric tons (mmt), 79-percent more than the same period in 2014. However, the value of those imports increased only 49 percent because prices fell.

Barley and sorghum accounted for about two-thirds of the cereal grain imports. These two commodities are imported as substitutes for expensive Chinese corn. Barley imports were up 120 percent and sorghum imports were up 90 percent from 2014. Corn imports more than doubled but reached only 4.6 mmt due to quota limits on imports. Imports of two other substitutes for corn--distillers grains and cassava--also increased. Wheat imports were down 5 percent but rice imports were up 32 percent.

Oilseeds--mainly soybeans--are by far the biggest component of agricultural imports, about a third of the value of agricultural imports. The volume of oilseed imports--mainly soybeans--was up 14 percent but their value decreased by 13 percent from 2014, reflecting lower prices for soybeans and a decrease in rapeseed imports.

While China's leaders fret about imports of grains, the value of meat and dairy imports--$18.5 billion--was about double the value of grain imports. The volume of pork imports was up 34 percent, swine offal imports were steady. Pork and swine offal imports were each about 700,000 metric tons. Beef imports were up 48 percent. However, milk powder imports were down 32 percent and sheep meat imports were down 28 percent.

Cotton imports were down 36 percent as domestic prices fell and import quotas were cut last year. However, textile companies imported yarn which is not restricted by a quota. Imports of yarn increased 19 percent.

Overall agricultural imports totaled $105.8 billion, but the value was down 5 percent from the year before--again due to lower prices in 2015. That total is roughly equal to 10 percent of the value-added of China's domestic agricultural output. Agricultural exports were about $63 billion and were down about 7 percent. The net trade deficit was $43 billion. The numbers for the full calendar year will be somewhat larger after December data comes in.

Meanwhile, the Chinese government is holding large stocks of most commodities. The government is unable to offload the inventories because market prices have fallen below the acquisition prices and authorities are not allowed to sell at a loss.

In summary, China is actually sopping up excess demand in most global commodity markets--with a few prominent exceptions--by importing while also holding massive inventories. Global prices would be even lower if China were to dump its inventories and stop importing. The drop in cotton and dairy imports reflects a draw-down of inventories for those commodities. However, China is still accumulating corn and rice inventories. Chinese authorities don't want to see lower ag prices because maintaining farmer income growth is a big priority.

China Ag imports Jan-Nov 2015, (million metric tons)
Imports	(mmt)	%Change from 2014
Cereals	30.6	78.7
Wheat	2.8	-5.5
Corn	4.6	130.0
Rice	3.0	32.1
Barley	10.3	120.0
Sorghum	9.8	89.6
Distillers grains	6.4	18.8
Cassava	8.7	10.5
Cotton	1.5	-35.8
Yarn	2.2	19.7
Sugar	4.3	39.1
Oilseeds	78.0	14.0
Soybeans	72.6	15.4
Rapeseed	4.2	-9.6
Edible oils	7.5	4.6
Palm oil	5.2	11.2
Rapeseed oil	0.7	-8.9
Sunflower oil	0.5	27.0
Soy oil	0.8	-26.7
Pork	0.7	34.2
Swine offal	0.7	-0.8
Beef	0.4	48.2
Sheep meat	0.2	-22.1
Milk powder	0.7	-32.8