The China Customs agricultural trade data for August continue to paint a picture of healthy import appetite. Imports did pullback from July’s extremely elevated levels for markets such as corn, soybeans, palm and soy, while only palm oil and cocoa imports were down y/y. China’s corn imports were weaker m/m after having risen for three successive months, but at 598.8Kt remained elevated, up 145% y/y. Exports were modestly higher on the month, at 4.98Kt but down 63% y/y. Hence, on a monthly basis, China stayed a hefty net corn importer in August, by 594Kt. China’s wheat imports were flat m/m at 251.4Kt, up 96% y/y.

In soybeans, China’s imports in August pulled back from July’s 5.9mn tonnes, which was the second-highest level on record. Soybean imports came in at 4.4mn tonnes, while YTD soybean imports are up 17% y/y after 2011’s subdued levels, which posted the first y/y decline in imports since 2004. While China’s import reliance on the global soybean market is structural, acreage devoted to soybeans in China is lower once again this year as farmers increase domestic corn production, which bodes well for import demand, although the rally in soybean prices may dampen the pace of imports over coming months. Record-high US soybean prices have seen Chinese crushers increase their offtake from weekly auctions from Chinese state reserves. We expect China to continue selling from reserves over coming months.

Meanwhile, China’s vegetable oil import figures eased in August. Soybean oil imports at 118.1Kt were sharply below month-ago levels of 203Kt, which marked the highest import level since July 2011. Palm oil imports at 457.5Kt were also weaker in August, from July’s 472.6Kt, which was the loftiest level since March 2012. China’s cotton imports at 305.6Kt were down 25% m/m after posting a 15% m/m decline in July but were still up 48% y/y.

Cotton exports at 1.4Kt were almost unchanged on the month, taking net cotton imports to 304.2Kt – their weakest level since October 2011. YTD cotton imports are still up y/y, by 123%, as China’s stock-building exercise to support domestic prices and farmers’ incomes (a second year of stockpiling was initiated in September 2012 to last until April 2013) mopped up domestic production and led to high domestic prices, with Chinese textile mills resorting to less expensive imports.

This has meant that despite lacklustre demand, China’s cotton imports have been strong in 2012. Mills had asked for additional import quotas but China’s National Development and Reform Commission (NDRC) earlier this month said no more import quotas would be issued for 2012. In our view, this is likely to imply that the strength in import demand is not expected to continue over the coming year, with the USDA estimating China’s 2012-13 cotton imports at 12mn bales, down a sizeable 51% y/y.

Across soft commodities, China’s sugar imports at 583.4Kt were up 47% m/m and 38% y/y, coming in at a record high, while exports declined 33% m/m to 2.5Kt, keeping China a hefty net importer, at 581Kt. However, we do not expect the strength in China’s sugar import demand to continue, with indications that the 2012-13 crop will be good due to favourable weather and increased plantings.