Will China boost corn output or become a permanent importer?

China in recent years has been notoriously absent from global corn trade, particularly when compared with its consumption rates, in its efforts to bolster food security and maintain self-sufficiency.

However, Chinese corn prices surged this year as stockpiles dwindled, forcing the country to scoop up large quantities of foreign corn, especially from the United States. China is now on the path to becoming the top importer of the yellow grain next year.

The question now is whether the Asian country plans to permanently cement itself as a top corn importer, whether the government will attempt to boost domestic production, a combination of both or none of the above.

China’s recent emergence as a major corn importer comes just a few years after Beijing eliminated both the corn stockpiling scheme and minimum purchase prices, moves that aimed to curb imports by bringing domestic prices closer to global ones.

When those changes were implemented in 2016, the government had also suggested the country begin to steadily trim back corn plantings each year to relieve the massive inventories. Planted area has fallen a little since then, but yields have risen and output remains elevated.

China’s feed needs declined in late 2018 through 2019 as African swine fever swept through its hog herd. But around April this year, the country’s corn prices began to rise. Between May and September, the ministry held several reserve auctions, which were cleaned out almost every time despite the high costs.

It is not completely certain what caused the seemingly sudden and rapid drawdown of corn stocks in China, and no one really knows their exact size, either. But market participants around the world have long been skeptical about the quality of China’s inventory and unusable corn could have possibly decreased inventories.

MARKET CHANGES

China’s pig and sow herd had recovered to more than 90% of normal levels as of last month after having plunged by around 40% a little more than a year ago. Feed demand has returned, but that is not the only reason China has stepped up grain and oilseed imports.

Full details of Beijing’s next five-year plan are expected to be unveiled in early 2021, though experts believe that building grain reserves, promoting domestic output and diversifying international suppliers could headline the agriculture-related goals.

No one knows how much grain China plans to stockpile, but this idea has allowed for very open-ended import scenarios of corn, soybeans and other grains.

Some analysts have suggested that annual corn imports within the next couple years could more than double the 16.5 million tonnes that the U.S. Department of Agriculture has predicted for the current year, though others wonder if the demand boom is more temporary in nature.

Diversifying suppliers has increasingly been on China’s radar since the trade war broke out with the United States in 2018. While this idea does not directly imply that actual imports will increase, it would certainly seem like an acknowledgment that imports are necessary to guarantee food security, at least for now.

PRODUCTION TRENDS

Wheat and rice are the only two crops for which the government still supports price, and Beijing upped the 2021 minimum wheat purchase price by 0.9%. The country has more than a year’s worth of wheat and rice in storage.

Support prices for wheat have long kept domestic wheat prices extremely elevated versus global ones, but Chinese farmers continue producing the grain since profit levels are guaranteed. Chinese wheat prices had also remained comfortably above those of corn until recently.

Physical corn prices in China in recent weeks edged past those for wheat for the first time in more than five years, and futures prices also converged within the last two months. This should stimulate some additional wheat feeding, though it is not expected to materially change China’s record-large stockpiles. The world’s top wheat producer is expected to hold a record 51% of global inventory by mid-2021.

High domestic corn prices should encourage Chinese farmers to maintain or even increase corn plantings in the spring, but Beijing may have to intervene if strong production of the yellow grain is a top priority.

Subsidies for soybeans, which are largely grown in the same regions as corn, have been much more attractive than those for corn. It would not be surprising to see China increase corn subsidies or introduce other incentives in the near future to promote production.

Yield is another potential avenue for output growth. The Asian country is the No. 2 producer of the yellow grain behind the United States, but Chinese yields are around 45% lower than U.S. ones.

Hellenic Shipping News

Tags: China, corn output