Monday's trade saw the Bloomberg Commodity Index hit its lowest point seen since June 2002 of 96.1913. This is an index that tracks 22 commodities. One Bloomberg headline today stated Gold Leads Commodities "Mess" That Has Many Investors Smarting. In fact, it was gold that led the commodity selling on Monday, with a two-minute selling spree in China leading to a $25.10/ounce drop in global markets to make commodities this year's worst performing asset class.
While the past few weeks have focused on the issues faced in Greece, China's stock market was taking a beating with some media types on the fringe suggesting that this is the real issue in the global economy. Today's Globe and Mail newspaper suggested that $4 trillion U.S. in stock market equity has been wiped out in the past month. As a result, the article said the "aftershock ripples ... from cognac to iron ore" and goes on to show how both global and Chinese domestic companies are being beat up on selling everything from food products to luxury cars.
There is an expectation that this situation will worsen. While current data shows China's GDP equal to the government's target of 7%, Scotiabank's July Global Economics Executive Briefing suggests 2015/16 real GDP growth will slip to 6.75% as the country turns from its reliance on heavy industry with increased reliance on "consumer-based and services-oriented" output as the driver of the nation's economy.
The Ag industry will find it hard to escape this slowdown in China's economy. Today's Dow Jones ICE Canada Closing Comments included a conversation with a trader who tied the current turmoil in China to a "negative pull on canola" while noting a slow-down in new-crop business. This situation will be magnified, given Canada's smaller crop with the expectation that China will substitute with cheaper alternatives.
The attached chart is based on China's official import data as reported by Dow Jones. Blue bars represent the year-over-year percent change in the January through June volumes imported. As indicated, China's first six-month imports of barley increased 120.74%, soymeal imports increased 193.77% and year-to-date corn imports were reported to be 92.48% higher than the same period last year. Gains were also noted for soybeans, up 2.78% from last year.
Grains where imports have declined include rapeseed/canola, down 13.13%, rapeseed oil (18.45%), rapeseed meal (59.19%) and soybean oil (67.47%), with year-over-year reductions in brackets.
Where possible, the percent change in imports from Canada is also shown, as indicated by red bars. For example, while China has imported 45.4% less wheat in the first six months of the year, the year-over-year percent change in imports from Canada is reported to be 66.66% higher at 519,499 mt, or 37% of the total volume, second only to Australia. Canada's barley shipments are also reported to be noteworthy, with China boosting its year-over-year imports of barley by 120.7% to 5.4 mmt, while imports from Canada have increased 137.8% to 575,859 mt.
Canada's share of China's soybean imports has slipped, with a year-over-year increase of 2.78% to 35.15 mmt while imports from Canada have fallen 6.7% to 481,041 mt in the first six months.
China's canola imports from Canada were reported to be 17.9% lower than last year at 1.852 mmt, more than the percentage drop in overall canola imports, with competition from countries such as Australia, Mongolia and Russia which have all posted year-over-year increases in China's June through July imports.
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