By Ross Korves, Truth About Trade & Technology
Corn import license requests by some large southern China corn users have raised concerns about the capacity for the world corn market to handle another significant buyer. China had a smaller corn crop in 2009 due to dry weather after a record large 2008 crop. The government has also been building reserve stocks after the high price scares of 2007 and 2008.
According to estimates from the Foreign Agricultural Service of USDA, China's corn production for marketing year 2009/10 (Oct. 1, 2009 - Sept. 30, 2010) was 155.0 million metric tons (MMT), the country's second largest crop, but down from 2008/09 production of 165.9 MMT. Area harvested was up 250,000 acres at 74.1 million acres, but yield per acre was 82.9 bushels, down from 89.3 bushels per acre in 2008/09 due to dry weather and some wind damage. Corn consumption for 2009/10 is projected to be a record at 159.0 MMT, up from 152.0 MMT in 2008/09. Carryover stocks at the end of the 2009/10 marketing year are expected to decline to 49.1 MMT from 53.2 MMT for the 2008/09 marketing year.
These stocks are up from the 35-40 MMT range for the four years prior to 2008/09, but much less than the 100 MMT stocks carried in the last half of the 1990s. The Chinese government made a decision about 10 years ago to lower carryover stocks, but became concerned that stocks were reduced too much as prices for all grains and oilseeds rose sharply in 2007 and the first half of 2008. Purchasing one or two MMT of corn would not make a huge difference in carryover stocks, but it would provide support to livestock and poultry producers in the southern portion of the country who face particularly high feed costs. Until the last three years, China was known for exporting 5-10 MMT per year of corn to neighboring countries. China is expected to continue to import small quantities of corn under its free trade agreement with ASEAN countries and export small quantities to some neighbors.
China has large carryover supplies of wheat and rice and according to the U.S. Agricultural Attache in China in most years a significant amount of wheat and low grade rice are used for livestock and poultry feed when corn prices are high. Distiller's dried grain with solubles (DDGS), a byproduct of U.S. ethanol production from corn, has also found a price-competitive place in feed rations in China. Imports were 655,000 metric tons in calendar year 2009 and some traders believe imports may grow to over 2.0 MMT for 2010. Feed wheat imports will also be competitively priced based on the current estimates of world production for the 2010 crop to be less than the past two years, but still the third largest.
World corn trade for the 2009/10 marketing year is estimated by USDA at 85.4 MMT compared to 83.8 MMT in 2008/09 and 98.2 MMT in the record setting 2007/08 marketing year. If China imported 2.0 MMT, it would be within the normal yearly variation in world corn trade. World carryover supplies minus Chinese stocks are projected to be 95.1 MMT, at the upper end of the 89-95 MMT range for 2004/05 to 2009/10 except for the low carryover of 72.8 MMT in 2006/07. U.S. carryover supplies are projected at 48.3 MMT, the highest since 50.0 MMT at the end of the 2005/06 marketing year.
The U.S. continues to be the dominant corn exporter with a projected 48.0 MMT for 2009/10, 56.2 percent of world exports of 85.4 MMT. That is down from record U.S. exports of 60.7 MMT in 2007/08 and a 61.8 percent market share. Argentine exports are projected at 12.0 MMT, up 42 percent from 2008/09 when drought cut exports to only 8.5 MMT, but still short of the 15.7 MMT exports in 2006/07 and 2007/08. Brazilian exports are projected at 8.0 MMT, similar to the previous three years. Corn exports by Ukraine are expected to be 5.0 MMT, down from 5.5 MMT in 2008/09, but more than double the years before that.
The U.S. could easily sell 2-3 MMT of corn to China in coming months without significantly impacting market conditions. U.S. farmers intend to plant about 2.3 million acres more corn in 2010 than in 2009 and early season planting weather is favorable for a quick start to the 2010 growing season which increases the likelihood that the U.S. will have a normal yield for the 2010 crop. Favorable early planting weather may also add another 1-2 million acres to corn plantings. If that happens, production will likely exceed use and carryover supplies will build further in the 2010/11 marketing year. If the U.S. is not price competitive, China could likely get supplies from Argentina, Brazil, South Africa, Thailand and India.
Under the ascension agreement when China joined the WTO in 2001, import demand was to be at least partly market driven. A tariff rate quota (TRQ) was established for corn that increased to 7.2 MMT for 2004 and each year after with 60 percent of the TRQs allocate to state enterprises and the other 40 percent to private enterprises like those corn users in southern China. The TRQ rules were to be announced before the marketing year began, transparent in operation, minimize licensing requirements and be allocated in commercial quantities. This should have created a relatively free market for 2.9 MMT per year, roughly the amount that analysts have suggested China could import in coming months. Since joining the WTO, China's corn imports from the U.S. have been zero most years.
What happens next on corn imports for this marketing year is mostly up to the Chinese government. If the drought in southwestern China continues or worsens over the next month or two, Chinese corn prices are likely to increase further. If U.S. corn planting is rapid as current weather patterns may allow, U.S. corn prices are expected to remain stable and become more competitive in the Chinese market.
China's grains policies have allowed it to feed its 1.3 billion people without relying on a significant amount of grain imports. China now has the financial resources and the trade policy framework under WTO rules to allow for corn imports without changing its basic structure of grain production and grain reserves policies. International supplies are more than adequate to meet China's short-term needs for corn and other feedstuffs. This would be an opportune time for China to allow market forces to meet livestock and poultry feed requirements.