Chinese soyabean subsidies force buyers to shell out more for peanuts

Peanuts have become China best-performing agricultural commodity as dry weather and Beijing’s policies have eaten into supplies, raising traders’ fears that demand from the world’s largest importer of the legume will push up international prices.

China suffered a severe drought in key growing areas last year, while the government’s agricultural subsidy programme, which favours soyabeans, has led to a sharp drop in the country’s peanut acreage.

Futures contracts traded on the Zhengzhou Commodity Exchange have risen about 10 per cent this year to just under Rmb11,000 ($1,582) a tonne. They are hovering just below a record high touched late last month, making them the country’s best-performing agricultural commodity so far in 2023.

The rally in Chinese peanut prices comes as the global market remains tight, with drought having affected many of the main international exporters last year. Weather in Argentina, the leading exporter, has been erratic during the past few months, raising traders’ concerns about lower yields and smaller kernels, while heavy rains in Brazil have hampered harvesting, leading to analyst worries about quality issues, according to Mintec, the commodity data and analysis firm.

China is the world’s largest peanut producer, mainly crushing it for oil, but it is also the leading importer of the commodity. This year it is expected to import 1.1mn tonnes of the groundnut, more than quadruple that of the EU, the second-largest market.

Since China reopened at the start of the year, it has actively bought up supplies, said traders and analysts. “They are everywhere trying to buy peanuts,” said Martin Masopust, director at Netherlands-based trader Bohemia Nut. “China is the market driver. If they plant less peanuts because they lose acreage to soyabeans, then it will affect the world market.”

Masopust said last year’s drought had helped exacerbate domestic supply shortages and was driving Chinese buyers to snap up supply across global markets ranging from Senegal to Sudan.

Aidan Wright, senior nuts and dried fruit analyst at Mintec, said: “Chinese buyers have been securing peanut oil out of South America and buying up US farmer stock for crushing.”

Analysts at the US Department of Agriculture had warned as early as November that “low prices, combined with unfavourably dry planting conditions in some regions, forced some farmers to forgo planting typically higher margin peanuts for other crops”, but added that “high losses are likely limited to a few regions”.

Beijing has yet to announce official production figures for 2022, but Chinese media have begun sounding the alarm in recent months, warning that government subsidies encouraging farmers to raise corn and soyabeans, a rival oilseed, had pushed farmers to abandon peanut planting in pursuit of greater returns from other crops.

Last month, the state-run Economic Daily reported that arable land used to cultivate peanuts in China shrank almost 19 per cent in 2022, a record fall, concluding that improvements “clearly remain to be made with regards to policies meant to ensure simultaneous growth in output capacity for cereals, soyabeans and other oils”.

Chinese news and data provider Grain News has reported that industry estimates pointed to a fall of more than 23 per cent in China’s peanut production last year.

Darin Friedrichs, a commodities analyst at Shanghai-based Sitonia Consulting, said China’s domestic peanut futures market, which launched just two years ago, was “just getting tossed around by government subsidies”.