Economist Says China Has Large Stocks, of Everything10/24/2016
One could summarize the current focus of grain markets with three phrases: low prices, large crops, and growing inventories.
This has been especially true given strong U.S. corn, soybean, and wheat yields in 2016. Several reports of large piles of grain around the country and world, especially in China, have further captured this reality.
It’s interesting to look at China’s corn, soybean, and wheat global grain inventories and its share of the market.
GLOBAL GRAIN INVENTORIES
When thinking about global grain inventories, it’s important to keep in mind the relative size of ending stocks. In figure 1 global ending stocks are reported as a share of total use (or consumption) for corn, soybeans, and wheat since 1960.
Global corn stocks have recently climbed to more than 20% of usage. For marketing years 2003/2004 to 2013/2014 corn inventories were below 20% and hit a low of 14% in 2010/2011. While current corn inventories are higher than recent years, it’s worth nothing they are considerably lower than levels in the 1990s when levels were regularly between 25% and 30%.
From a historical standpoint, the global inventory situation in wheat is more burdensome. Currently, global ending stocks are approaching 35%. Only 12 years – out of the past 56 – have experienced larger wheat inventories. It’s worth noting that just a few years ago – 2007/2008 marketing year – wheat inventories were at their lowest levels in 56 years. Things changed fast, indeed!
Conditions are a bit different – and arguably more optimistic – in soybeans. During the 1980s and 1990s, soybean ending stocks typically ran between 15% and 20%. Since 2005, ending stocks have traded at a higher range, between 20% and 25%. Recently, soybean stocks have trended lower. So, while soybean stocks are higher than levels in the 1990s, current levels are not at a decade (or longer) highs as they are with corn and wheat.
Commentary about global grain stocks inevitably leads to a mention about China’s large piles of grain. Since around 2005, China has accounted for a large share of global stocks.
In corn, for instance, China’s ending stocks increased from 28% of global stocks in 2004/2005 to more than 50% in recent years. China currently accounts for 45% of global wheat stocks and nearly 20% of soybeans.
China is often thought of as a primary consumer of grain, not an exporting nation. While China could allow for export of grain inventories at any time, it’s worth a few minutes to think about China as not exporting grain. By doing this, ending stocks look a bit different.
Ending stocks as a share of usage is shown for the World less China is shown. Overall, a generally tighter ending stock situation emerges. In wheat, inventories have trended lower in recent years. Corn inventories have trended higher, but remain mostly flat at around 10%. Soybean ending stocks have trended lower since 2006/2007.
When thinking about grain inventories and global ending stocks, a couple considerations are important. First, wheat and corn ending stocks, as a share of usage, have increased to decade highs. For corn, levels are still considerably lower than levels in the 1990s. For both corn and wheat, global grain inventories are currently well below the levels of the 1980s; comfort can be taken in that.
With soybeans, inventories have been at levels much higher than in the 1990s, but not at decade highs. Furthermore, stocks have trended lower in recent years. If global production of soybeans is cut in 2017, the markets will likely be responsive.
While global inventories have grown in recent years, China accounts for a large and growing share of global grain inventories. In both corn and wheat, China accounts for more than 45% of current global ending stocks. And while China could export this grain, especially corn, it’s important to recognize a large share of grain stocks is held by a country that does not traditionally export corn and wheat.