China's push for food security
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China is increasingly pushing for food security and self-sufficiency, and this has been widely reported by the media – see this Bloomberg article and this SCMP article.
Geopolitics certainly play an important part, especially in the wake of the Russia-Ukraine war. But China's struggle with an ever-growing appetite for grains and oilseeds pre-dates the Russia-Ukraine war: China ranked 34th out of 113 countries in the 2021 Global Food Security Index, which measures food affordability, availability, quality and safety, and natural resources and resilience.
While we don't think China faces risk of a shortage of food or a reduction in calories consumed, they have definitely articulated a policy to be more self-sufficient in food production which I read as being less reliant on imports of food and agriculture products.
For China to fulfill its pledge of greater food self-sufficiency, several factors would need to be in play.
First there should be an increase domestic oilseed production at the expense of other crops. Oilseeds import for domestic livestock feed has been the key feature of China’s diet evolution, but crop patterns within China have not mirrored this. A re-alignment of acres inside China away from grains and toward oilseeds would help correct the imbalance. China could then look to increase grain imports as needed to offset any domestic acreage reductions.
This would have an added benefit of allowing China to increase trade with politically favored partners (e.g. Russian wheat) while minimizing reliance on US soy. Taken together, these actions would favor a relative value gain for grains versus oilseeds in futures markets.
The path toward self-sufficiency is likely to be an austere one and any flattening of the China growth curve is a bearish influence on all major agricultural markets.
China is better positioned to commit its population to austerity and can control imports so that price signals that may increase consumption elsewhere may not prompt a response from within China, implying longer cycles to any supply driven bear markets.