China's recently announced tax exclusion for wheat is good news for the U.S. wheat industry, but it may be too early to declare the news good enough to move prices in a depressed domestic situation.
China's Ministry of Commerce recently announced its value added tax of about 13 percent will not apply to wheat imported through the end of December 2004. The announcement, which extends an exemption originally announced in May, is good news to China's importers and for U.S. wheat producers, according to information released by U.S. Wheat Associates.
“As recently the week of Sept. 13-18, Chinese government buyers and private buyers expressed interest in additional U.S. wheat purchases, although specifics are not available,” said USWA.
In the 2004-05 marketing year, Chinese buyers contracted for 1.9 million metric tons of U.S. wheat, purchasing hard red spring, soft white and soft red winter wheat. By mid-September, they shipped more than 60 percent of this year's U.S. purchase commitments, with new shipments departing on a regular basis.
“Millers in China like U.S. wheat for blending with domestic wheat or, in the case of U.S. hard red spring wheat, for producing high gluten flour that is used in quality bread and noodle products,” says U.S. Wheat Associates regional vice president Matt Weimar. “The U.S. soft wheat classes enjoy a strong reputation among China's bakers for production of low gluten strength premium cake, cookie and cracker flour.”
China's domestic wheat production estimates for the total 2004 winter and spring wheat harvest top 90 million metric tons, up from the 2003 harvest of 86.4 million metric tons. The 2004 crop year had ideal weather conditions and, in some spring wheat production areas, an increase in sown area.
Looking to the 2005 winter wheat crop, some experts predict as much as a 4 percent increase in area sown.
Despite the increases, however, production continues to fall short of estimated annual usage by 10 million metric tons to 15 million metric tons.
“While some commentators predict China's imports to fall in the second half of 2005, much will depend on the available stocks, new crop planting and the weather,” Weimar explains. “In the end, without ideal conditions, there will be a continued drawing down of domestic stocks and a growing supply-demand gap. We expect China will import wheat, particularly with qualities not available domestically, to meet overall demand in a growing and diverse consumer market,” adding the extension of the value added tax exemption will support those imports in the near term.
Bobby Coats, agricultural policy analyst with the University of Arkansas Cooperative Extension Service, likes to see any possibility of avenues to increase wheat exports, but he indicates some skepticism at the true grains stocks situation in China.
“China, China… what we would all give to know its true grain stocks situation,” says Coats. “USDA expects China to be a net grain importer for the first time in nearly a decade due to consumption exceeding production.”
Coats says China's ending wheat stocks have fallen from 92 million metric tons in 2000-01 to 38 million metric tons in 2004-05, while imports for the same period were 195,000 metric tons in 2000-01 and estimated by USDA at 8 million metric tons for 2004-05, which compares to 3.8 million metric tons in 2003-04 and only 418,000 metric tons in 2002-03.
“Coming into 2004, China had two extreme problems in need of immediate attention,” says Coats. “The first was an overheated economy that was inflating commodities as a group globally; the second problem was food security concerns because of declining grain stocks.
“Today, there is every indication China may very well succeed in cooling off its overheated economy and achieve a soft landing.”
On the issue of food security, Coats says China probably never intended to allow grain stocks to slip as low as they are today.
“Over the next few years we will see China using an array of tactics to rebuild grain stocks to a level that more nearly meets its food security policy, and those tactics will limit major grain price movement,” says Coats.
Mid-South growers interested in other international and national issues affecting commodity prices can find regularly-updated information at the ACES' Ag Policy Web site at http://www.aragriculture.org/agfoodpolicy/default.asp. Specific rice information is available at the Rice Outlook Web Site, http://www.aragriculture.org/agfoodpolicy/ricesitol/defaault.asp.
Eva Ann Dorris is an ag journalist from Pontotoc, Miss. She can be reached at 662-419-9176 or [email protected].