Something is happening in China’s corn market but crop data and other information from the country is so muddy it’s impossible to tell what is really going on.
Every few years some analyst in the grain industry forecasts that “very soon” China will begin to import vast amounts of corn because its farmers will be unable to keep up with demand.
It has never happened and so I’m skeptical of such forecasts, but this time there is more meat on the bone to forecasts of increased Chinese corn buying.
But the situation is still anything but clear and I would not be surprised a year from now to see that corn imports by the Asian giant saw only a modest uptick.
China adapted well to other recent supply shocks, most noticeably in the last two years when as part of its trade war with the United States it put large tariffs on American soybeans, causing supply from the U.S. to fall to a trickle.
It bought more from South America but still total soybean imports fell and the country filled the gap with other feedstuffs and by altering hog feed formulations. It also helped that its hog herd shrank because of African swine fever.
But if the corn shortage is as bad as analysts suggest and imports do boom this year, I expect the communist government will make big changes to its agricultural policy to restore the country to grain self-sufficiency, a goal it has stuck to for decades. It does not want its structural deficit in oilseeds to be repeated in corn, wheat and rice.
Here is what we know so far.
In August, corn in China topped 2,300 yuan per tonne, or more than US$335, while corn in the U.S. fetched around $140 per tonne.
China keeps its corn prices high to try to ensure ample supply, but the gap is particularly wide this year.
The corn value is also high compared to prices in China last year at the same time, up about 15 percent.
Several weather events stressed China’s crops this year, including three recent typhoons that caused flooding and wind damage to key corn-growing areas in the northeast.
However, the government claims a bumper harvest is coming and its leaders stepped up to publicly state there is no need for consumers to worry about food shortages.
At the same time, Chinese President Xi Jinping launched an urgent campaign to end food waste and a government think-tank warned that the country could face a grain supply gap of 130 million tonnes by the end of 2025 if structural problems are not quickly addressed.
Meanwhile, private agricultural analysts in China say that even with bumper harvests, production has fallen short of demand for several years and the huge surplus stocks accumulated in the previous decade are mostly gone.
Before 2016, corn stocks had grown to an unmanageable mountain under government price guarantees and stockpiling, but then Beijing made a radical policy shift toward a more market-based program.
At that point, corn production growth, which had been climbing five to 10 percent a year, levelled off at around 260 million tonnes a year.
However, demand continued to grow, outstripping production. The deficit was covered as the government sold off its huge stockpile. China also began to import more dried distillers grain and sorghum, at least until the trade war with the U.S. began.
It would also be able to draw on its stockpile of wheat as a feed alternative.
A recent story in Hong Kong’s South China Morning Post said the Chinese Agricultural Outlook Committee, a unit at the Ministry of Agriculture, forecast the 2020-21 corn deficit at 16.68 million tonnes.
The official forecast for the 2020-21 corn crop is for 265 million tonnes, down 1.8 million from August, but still a little larger than in recent years.
The South China Morning Post quoted Alexander Karavaytsev, an economist with the International Grains Council, as saying that the gap between production and demand could be much larger than the official forecast of 16.68 million tonnes, perhaps as much as 25 million tonnes.
I should also note that the hog herd is rebuilding after the ravages of ASF and that is expected to rebuild the demand for feedgrains.
China has a corn import quota of 7.2 million tonnes for the 2020 calendar year, of which it has already used more than 50 percent. There is lots of speculation that it will have to increase the quota.
Already China has booked 8.8 million tonnes of American corn for shipment in the 2020-21 crop year, compared to almost nothing at that point last year when the trade war was still in full force.
China has also booked large tonnages from Ukraine.
American corn growers always hope for big shipments to China but this year they are particularly keen because they expect a massive harvest and demand from the ethanol industry is off because of reduced fuel use associated with the pandemic. Huge exports will be needed to avoid a large buildup in year-end corn stocks.
The U.S. Department of Agriculture’s Sept. 11 monthly supply and demand report nudged up the forecast for U.S. 2020-21 corn exports to 59.06 million tonnes from 56.52 million the previous month, but it kept its expectation of China’s imports at only seven million tonnes, citing the quota that has yet to be changed, even though Chinese buyers have already booked deliveries that would appear to exceed the quota.
Another factor to consider is the U.S.-China trade deal that commits the latter to huge imports of American farm goods. That is further incentive for Beijing to raise the corn import quota.
Some analysts expect this year’s experience will usher in a new era of big Chinese corn importing.
But I expect China’s leaders do not want to be beholden to the U.S. for an ever increasing amount of its critical food needs.
Through their “belt and road initiative” they have heavily invested in agricultural production and transportation infrastructure outside of China to increase the range of sources for food imports.
I expect they will also bring in policies to further consolidate and modernize domestic crop production, which has suffered from heavy rural out migration to cities and an aging farm population.
The same report that forecast a 135 million tonne grain deficit by 2025 discussed potential reforms. You can read more about it at dimsums.blogspot.com.
The government is already working on pilot programs to cause collective farms to operate more like capitalist companies and gain better access to the vast wealth of Chinese corporations and banks. It could result in big corporations running large commercial farms on land rented or leased from rural peasants.
It would be a huge reversal for a country formed from the 1949 communist revolution, which included in its commitments removing landlords and giving land to peasants who were later organized into collectives.