The fall in wheat prices in early autumn 2023 according to the principle of communicating vessels

If some lost, then some gained. Which country in the world actively bought huge volumes of old and new crop wheat before prices went up again.

Peter McMeekin, a market observer and agricultural analyst at Grain Brokers Australia, writes about this (article published on the Grain Central portal): “In recent months, Chinese wheat buyers have been tirelessly looking for this grain all over the world - where they could buy it cheaper to compensate for the quantitative and qualitative decline domestic production of winter wheat in the main grain provinces of the PRC. The true extent of damage to domestic production from rain and flooding is unclear, as is the extent of the decline in quality, but back in July Chinese authorities reported a 0.9 percent drop in this year's national wheat harvest to 134.53 million tonnes.

It is widely believed that large volumes of weather-damaged wheat were processed into livestock feed and there was a severe shortage of quality food wheat in China.

Accordingly, trade has long speculated that China will need to buy record volumes in the 2023-24 marketing year, which began on July 1, to replenish government reserves depleted by high prices in recent years. This largely explains the active Chinese purchases of wheat in recent months and the search for cheap grain.

The latest trading activity was in soft red winter wheat (SRW) from the US. Last week's buying round brings U.S. wheat purchases to about 680,000 tons over the past three weeks. The initial purchase of 220,000 tons of wheat, reported in early October, was China's largest purchase of U.S. wheat in more than two years and the first single sale of U.S. wheat to any destination, exceeding 100,000 tons since last November.

Interestingly, the rise in US wheat prices follows significant Chinese purchases of French, Australian and Canadian wheat over the past three months and coincides with a gradual decline in international wheat prices, which hit a three-year low late last month.

Since early September, China has reportedly purchased at least 2.5 million tons of wheat for delivery between November and February. These include at least 30 shipments of French Panamax wheat with a total weight of more than 1.8 million tons. Some reports from France say the figure is likely much higher, with the export line swamped with ships loading wheat marked "Destination China" until the end of the year.

Beijing managed to buy up a lot of Australian wheat, old and new, in the last couple of months before Australian wheat prices went up. Then, when the cost of wheat off Australia's east coast became well above export parity, China turned to France to meet some of the demand for nearby milling wheat.

And yet, last week China again showed activity in the Australian market: sales of Australian new crop wheat have already exceeded 2 million tons and could easily reach 2.5 million tons. Adding to this the 1 million tonnes of old crop shipped in July and August, we conservatively assume that at least 500,000 tonnes of old crop will be shipped in September and October and sales for the 2023/24 season will very quickly reach 4 million tonnes.

China has a quota system to control imports of staple foods such as wheat. The wheat quota allows imports of 9.636 million tons per year at a 1 percent duty, with about 90 percent of these purchases coming from state-owned enterprises. For imports above this limit, the tariff rises to 65%, a financial hurdle that usually pushes private traders out of the equation, leaving only state-owned giants in the market. The quota was never fully exhausted until the 2020-21 marketing year when wheat imports crossed 10 million tonnes for the first time and ended at 10.62 million tonnes.

China was the world's largest importer of wheat in the 2022-2023 marketing year, with 13.28 million tons of wheat shipped to the country's numerous coastal and river ports, according to the USDA. This was up from 9.57 million tonnes a year earlier, with Australia shipping 7.66 million tonnes, or 57.7% of the total. Turkey was the second-largest importer with 12.5 million tonnes, followed by the European Union with 12.09 million tonnes, while Egypt, the group's former leader, fell off the volume podium with 11.22 million tonnes.

In the first eight months of calendar year 2023, Chinese wheat imports totaled 9.56 million tonnes, of which 5.7 million tonnes, or 59.6%, came from Australia. With export data for Australia's 2022-23 marketing year (October-September) yet to be released, wheat exports to China are certain to set a new record, having already surpassed the previous season's benchmark of 6.11 million tonnes. After 11 months, exports are 7.36 million tonnes, representing 24.3% of total Australian wheat exports from 1 October 2022.

All indications from the current season suggest that a new record for China's wheat imports is virtually inevitable in 2023-24."