Just as China’s temporary corn reserves are about to evaporate there are signs that the ruling Communist Party is thinking about rebuilding the stockpile, says an analyst.
Arlan Suderman, chief commodities economist with StoneX Group, said COVID-19 has the Chinese government considering hording the crop again and returning to its former policy of self-sufficiency in corn.
In 2016, the Chinese government announced plans to end its temporary reserve price support program for corn and allow the market to establish prices for the commodity.
That resulted in the gradual depletion of the country’s stockpile of corn as falling domestic prices discouraged production and increased demand.
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“We anticipate (the temporary reserve) will be empty by the end of the month if (they) maintain the current weekly selling pace,” said Suderman.
StoneX estimates that will create an annual corn deficit of 25 to 30 million tonnes that would have to be filled by imports. A similar scenario happened with soybeans a couple of decades ago.
There are signs that imports are already on the rise.
In its recent Grain: World Markets and Trade report, the United States Department of Agriculture noted that U.S. new crop corn sales to the world amounted to 10.9 million tonnes as of the last week of July.
That is nearly triple the sales of a year ago and way ahead of the pace in recent years. About half of that total is sales to China.
“The pace of new crop sales to China ostensibly reflects China’s pressing needs for competitively priced feedstuffs to help meet growing feed demand and cool down domestic prices,” stated the USDA.
China’s feed mills need to import U.S. corn because the government has imposed anti-dumping and countervailing duties on Australian barley and U.S. distillers’ grains.
The USDA believes China’s corn imports will reach its tariff-rate quota level of 7.2 million tonnes for the first time since it joined the World Trade Organization in December 2001.
Suderman agrees that China’s 2020-21 corn imports will be strong but he wonders how long that will last as the Chinese government appears to have done an about-face and is suddenly encouraging domestic corn production.
Chinese President Xi Jinping visited a corn field in Jilin province at the end of July promoting no-till farming practices, co-operative agriculture and the increased mechanization of farms.
One of the country’s vice-premiers toured a corn field the following week delivering a similar message.
Those visits were followed by articles in China’s state-run media promoting the need for self-sufficiency in corn.
“They may be forced to import this year but that’s not their long-term goal,” said Suderman.
“They want to be self-sufficient and they’ve made that very clear here over the last few weeks.”
He blames COVID-19 for seemingly swinging China’s policy pendulum back from more of a quasi-free-market approach to a return to self-sufficiency and potential stockpiling.
The pandemic temporarily disrupted China’s supply chains leading to shortages of some commodities and China is worried it could have the same impact at ports in exporting countries.
“It’s possible that China will come in and empty our cupboards (this year) and if it does, it will be because of that fear factor of wanting to get its reserve supplies built up before the world falls apart because of coronavirus,” said Suderman.
“It is no secret that it is terrified of this disease that started within its own country.”
That is why he thinks the current new crop buying spree has more to do with frontloading purchases rather than the increased demand the USDA referenced in its report.
