March 7, 2018
Sorghum yesterday, beef and pork today, corn tomorrow? Understanding China's meat and feedgrain import binges
No one saw the new import trends coming back then. Does anyone see them coming now?
By Eric J. Brooks
An eFeedLink Hot Topic
Nobody saw it coming. Ten years ago, there was no shortage of analyst reports predicting that by 2015 China would be importing 15 million tonnes of corn annually, with many expecting that number to reach 20 to 25 million tonnes by 2020.
The logic was simple: China has roughly as much arable land as America, four times as many people and meat consumption that was skyrocketing towards western levels. It has run out of arable land for growing soybeans fifteen years earlier and thanks to rising meat consumption, the same would happen with corn.
Instead, China imported a USDA estimated 3.2 million tonnes of corn in 2015-16 and is on course to import 3.0 million tonnes in our current 2017-18 marketing year. No one (including this analyst) bothered to write reports on projected sorghum imports. These jumped from 9,000 tonnes in 2005-06 to 8.3 million tonnes in 2015-16. With feed wheat use jumping from 3.5 million tonnes into the 13 to 24 million tonne range, wheat imports jumped from under a million tonnes to as high as 6.7 million tonnes when its price undercut that of corn.
Similarly, no one at the time bothered to predict a bright future for Chinese red meat imports, or (except for DDGS) Chinese import of any alternative feed grains.
Instead, from almost no beef imports in 2005, they grew to 666,000 tonnes in 2015-16 and an estimated 1.025 million tonnes in our current marketing year. Over this same time, pork imports grew from around 50,000 tonnes in the mid-2000s to 2.1 million tonnes to 2.18 million tonnes last year.
The first cause of all these unexpected trends (and disappointed predictions) happened in 2007 when China announced its intention to encourage domestic corn production. Many did not expect that its government would force its livestock farms to pay two times or more the world price for corn, or that it would force them to do this for the better part of ten years.
Needless to say, high prices stimulated domestic corn production while making farmers minimize its use. Corn fell from 58% of feed rations in 2000 to 52% in 2017. That made it possible for China to achieve self-sufficiency in corn by importing massive amounts of sorghum and when its price was competitive, feed wheat. In truth, corn self-sufficiency was not really achieved: Dependence on foreign sorghum and wheat was swapped in place of mass corn imports.
This combination of high domestic corn prices and import barriers did more than just draw in vast quantities of alternative feed grains. First, it pushed up pork production costs to the point of making domestic pork comparable in price with beef. That encouraged China's fast-rising beef consumption to rise even faster, causing an exponential rise in beef imports from 2010 through the latter years of this decade.
Second, when combined with the official Chinese government policy of dumping reserve pork into the market during Chinese New Year and the Mid-Autumn Festival (when a high percentage of annual hog farming profits are earned), high corn prices devastated hog rearing returns.
With hog production unable to keep up with pork demand, imports flooded in -and China's government was not blind to this problem. In nations like the Philippines, high government-imposed corn prices induced a flood of meat imports. Now the same was happening in China.
The 2010s however, also saw America lose its near monopoly position in the world corn market -and this was the geopolitical reason that made China reluctant to import corn in the first place. America's share of world corn imports fell from 66% in the year 2000 to 33% in 2015.
With China now able to import all the corn it needs from nations such as Brazil, Argentina, and Ukraine, there was no longer any need to sacrifice its livestock sector to the goal of feed self-sufficiency.
Despite many ups and downs, China's gradual corn market liberalization is making the price of domestic corn slowly approach world price levels. For example, Dalian corn futures fall from RMB2,500/tonne (US$9.66/bushel) in the first quarter of 2015 to as low as RMB 1,550/tonne (US$6.20/bushel) a year and a half later.
-And even this very early stage, partial corn market liberalization is already producing results. Up until recently, Chinese pork grew to over 2 million tonnes, as domestic pork production fell in the face of stagnant, declining pork consumption. This year, the first pork consumption growth in excess of 2% since 2011, pork import volumes are now projected to fall 24%, to 1.65 million tonnes -just a year earlier, some analysts were expecting pork imports to total 3 million tonnes before 2020. It now appears this will not happen.
Amid stagnant domestic beef production, imports of beef are rising 10.8% in 2018, to over 1 million tonnes for the very first time -but do note- with lower corn costs allowing pork prices to fall, there spread between Chinese beef and pork prices is growing. With pork's price falling, its consumption is now rising at the expense of beef.
In 2016 when it was too early for corn market liberalizations' impact to be felt, China's beef consumption rose a USDA estimated 5.8%. Last year, beef's consumption rose 2.8% and this year, it is increasing by even less, 1.9%.
Hence, we can see a clear line of causation whereby falling the falling domestic cost of Chinese corn results in lower pork prices. By increasing the rate at which pork consumption grows and reduce beef consumption's long-term growth, beef import growth will also taper off. Hence, so long as China's corn market liberalization continues, falling pork import volumes will eventually be accompanied by a tapering off in the growth of beef import volumes.
Most interesting of all: The past year's fall in red meat import volumes occurred simultaneously with a rise in total feed grain imports. The rise in feed grain import volumes would be even greater were it not for China's still vast corn inventory. It will take several years before domestic corn stocks to fall to normal levels. Hence, we will not see aggressive growth in Chinese corn imports until after 2020, when domestic corn stocks fall to normal market-dictated levels.
Even so, one thing is clear: For a high-population, resource short country to enjoy a high per capita level of red meat consumption, something must give: It either must import the red meat itself or the livestock feed inputs required for its production.
Wary of relying on Uncle Sam for its corn, China opted to undertake mass imports of first alternative feed inputs and later, red meat itself. Now that it can safely import all the corn it needs from non-American sources, there is no reason China would want other countries to enjoy the value-added benefits of meat production that itself can do.
Conclusion? Expect the 2020s to be an era when China's red meat imports sag and its corn imports take off.
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