The end of price supports will send acreage plummeting, but the government’s stockpile is estimated to last for years
Fred Gale is still trying to figure out how China’s new corn policy will affect grain markets, but his initial thought is that it won’t.
China announced in March that it is ending its corn price support and procurement program for the country’s northeast region.
That region accounts for 40 percent of production for the world’s second largest corn producer, so the new policy could have a big impact on global corn output, depending on how it unfolds.
The U.S. Department of Agriculture said in last week’s World Agricultural Supply and Demand Estimates (WASDE) report that Chinese growers will plant 89 million acres of corn this year.
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That would be 5.6 percent below last year’s record area and the first decline since 2003.
The drop could have been worse, but the policy change was announced after seeding had already begun.
Gale, who is a senior economist with the USDA’s Economic Research Service, said the number that his WASDE colleagues came up with is at odds with reports out of China.
“That seems like a pretty steep decline,” he said. “That’s larger than other people have been saying.”
China’s agriculture ministry is forecasting a 3.4 percent acreage drop, and a Chinese group that he follows thinks there will be a 3.9 percent drop.
Some analysts feel a bigger decline will occur next year once farmers have had time to fully digest the impact of eliminating price supports.
Corn prices in China have already plummeted 30 percent since last year.
BMI Research predicts a 6.4 million tonne annual deficit in Chinese corn production by 2020 compared to a surplus of 5.2 million tonnes last year.
Gale said that may well be the case, but it won’t have much of an impact on the international corn market because China will be able to dip into its massive stockpile, which is estimated to be around 265 million tonnes to make up for annual shortfalls.
He said it is difficult to get a handle on where China’s corn production is heading because the new policy is scant on details. The government says it is replacing price supports with direct subsidies, but it is unclear how lucrative those subsidies will be.
The government also left open the ability to subsidize companies that buy corn in the fall, which would provide an indirect price support to Chinese farmers.
“Even if there is not explicit price support program, there still could be some kind of stockpiling in a different form,” said Gale.
China’s agriculture ministry has provided some guidance on where it sees corn acres heading. It wants a 16.6 million acre, or 18 percent, decline in plantings over the next five years.
High prices have pushed corn production into marginal, environmentally sensitive land. China would prefer that land be seeded with more environmentally friendly crops such as alfalfa, spring wheat and soybeans.
One of China’s goals is to bolster its dairy industry by growing more alfalfa and corn for silage.
It has also targeted a 60 percent increase in soybean production by 2020 to meet growing protein demand.
China produced 12 million tonnes of soybeans last year, compared to 107 million tonnes in the United States.
China is the world’s largest soybean importer, expected to import 87 million tonnes in 2016-17.
Gale said increased Chinese alfalfa production could cause it to import less of the crop from the U.S. and other countries, but he said increased Chinese soybean production would have little impact on trade because there is a huge and growing deficit of the crop in China because of its expanding livestock production that demands soy meal for feed .
