March 23, 2005

China's 04-05 corn export estimate raised to 6 million tonnes

Post has raised its estimate of China's 2004/05 corn exports to 6 million tonnes from the previous estimate of 4.5 million tonnes, as a result of more government support and favorable freight rates to nearby Asian markets, according to USDA.

In February, the National Development and Reform Commission issued 3 million tonnes of corn export quota: trade sources believe even more than 3 million tonnes already has been contracted and is expected to be shipped by the end of June. It is likely that an additional quota for the second half of the calendar year will be issued later, as happened in 2004. Trade sources estimate the total corn export quota for 2005 will be around 5 million tonnes. Because of near record corn output in 2004, the central and provincial governments are under pressure to prevent corn prices from falling, therefore, are increasing support for corn exports.

According to trade sources, the National Development & Reform Commission (NDRC) in February issued 3 million tonnes of corn export quota. This is the first that corn export quota this year. The quota is distributed among six provinces and two state grain traders including Jilin, Heilongjiang, Liaoning, Inner Mongolia, Hebei and Shanxi provinces, as well as the Jilin Grain Corp. and COFCO (China National Cereals, Oils & Foodstuffs Corp.).

The Chinese government controls corn exports through a quota licensing system. Based on its evaluation of grain supply and demand, NDRC decides the timing and size of the quota. For instance, in 2004 NDRC issued 1.4 million tonnes of corn export quota in the first half of the year and then 3 million tonnes more in the second half. Actual exports totaled 2.3 million tonnes in 2004. The unused quota for RMB 2004 still could be valid if cargoes are shipped by end of March 2005, according to trade sources.

In May 04/05, China exported 921,000 million tonnes of corn through January, according to Customs data. Trade sources estimate that China's corn exports in February would be the same level as in January, or about half a million tonnes.

Following near record corn production in 2004, prices in producing regions have drifted downward since the harvest. Both central and provincial governments are under pressure to offer more support on corn exports to prevent the price from declining further.

Corn exports are entitled to a rebate of the 13 percent Value-Added Tax (VAT). Rather than a contract price, the rebate is calculated from a fixed base price. For 2005, the base price has been increased from 860RMB/tonnes to 1100RMB/tonnes, raising the VAT "rebate" from 112 to 143 RMB/tonnes. In addition to increasing the rebate on corn exports, some provincial governments reportedly also offer incentives to export to reduce corn stock levels and lower provincial storage costs. Except for favorable rail cargo rates, which have been acknowledged by the government, other support is very difficult to quantify.

Following its accession to the WTO, China stated that it did not and would not subsidize exports in violation of WTO rules. Many analysts, however, believe that through VAT rebates and other schemes, Chinese corn exports are subsidized.

Other than a few thousand tonnes of border trade, China does not import any corn. Following is an estimate on corn import costs calculated by a trade source. As it shows, the cost for imported US corn still exceeds domestic corn prices.