China’s corn needs likely to fall as ethanol plan slashed

What in the world is China going to buy from American farmers to live up to the bragging of United States President Donald Trump?

China just put on the back burner a plan for a huge increase in ethanol use, so hopes for increased buying of U.S. biofuel or corn are dashed.

China’s hog herd is devastated by African swine fever so the demand for soybeans and soy meal is way down.

American pork and other meat will likely be in demand, but supplies are not endless, certainly not tens of billions of dollars’ worth.

And yet Trump just last week was still claiming the Asians would buy US$50 billion of American agricultural products — twice as much as in any previous year.

At a news conference, Trump wondered aloud whether U.S. farmers would even be physically able to produce the amount of farm goods that China intended to buy.

“The big question I have is whether or not the farmers will be able to supply that much,” Trump said Jan. 9. “It’s the biggest contract ever signed.”

The word contract implies an enforceable agreement but from what I am reading the Chinese see the situation in a much different light and the discrepancies between the two positions could lead to continuing disputes.

Chinese President Xi Jinping is not willing to meet Trump to sign the deal. As this column was written, Vice-Premier Liu He, who has been the lead Chinese negotiator, is expected to travel to Washington for the signing ceremony Jan. 15.

Several analytics companies have taken a swing at calculating the positive impacts for American export demand and grain and meat prices if the promise of the trade deal was fully implemented. But the markets, and likely most farmers, are taking a wait-and-see attitude.

Certainly, there are many “on the ground” realities that indicate the deal is being overhyped by the White House.

The latest reality is Beijing’s decision to shelve its ethanol plan, which was ambitious at best and likely unattainable from the start.

Conceived in 2017 at a time when policy makers thought there was a huge oversupply of corn in Chinese government hands, maybe 200 million tonnes, the idea was to create a mandate for 10 percent ethanol blend in all gasoline by 2020.

This would stimulate massive investment of dozens of huge corn ethanol plants that would use up the surplus. The cleaner burning fuel would help address the country’s severe pollution problem.

Reuters News Agency calculated the program would require 45 million tonnes of corn a year, which would rapidly bring down the surplus of the grain.

Americans hoped it would cause the Chinese to buy more American corn and ethanol.

Once the stocks were manageable, Beijing expected that it would be able to accomplish by about 2025 what the ethanol industry in the West has been unable to do, namely develop a financially sustainable technology to transition to cellulose-based ethanol and advanced biofuels.

But by early last fall Chinese officials were already saying that the corn stocks were down to 56 million tonnes, nowhere near as large as previously reported.

Some ethanol plants were being built in some provinces, but production would be far too small to support a national 10 percent ethanol blend.

Beijing now appears to have reverted to its long-held policy of ensuring that food security must take priority over biofuel.

This same preoccupation with food security is one reason for China’s massive investment in the belt and road initiative designed to improve transportation and trade infrastructure around the globe, with China at the hub.

It has reformed its agricultural policies to put them on a more commercial footing while at the same time encouraging as much self-sufficiency as possible.

But it also recognizes that food imports are unavoidable. It does not want the strategic weakness that would come from over-reliance on one or two food exporters, so it has been forging new alliances and making agricultural investments in South America, the Black Sea region and Africa to diversify its sources of food.

That whole policy direction would be upended if it actually bought $50 billion of agricultural products from the U.S. alone.

Chinese authorities appear to hope that they can appease Washington by making modest concessions, such as improving its tariff policy on wheat, corn, and other farm products to conform to the rules of the World Trade Organization.

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