FEED Business Worldwide - April, 2012

 

Feed grains' day of reckoning approaches: Anybody got 20 million tonnes of corn to sell? 

 

by Eric J. BROOKS

 

 

While the preceding livestock articles discussed government policies that could threaten China's meat supply security, corn is the one input that could derail its entire agribusiness miracle. Most distressing of all, the issue is mostly out of the government's control:

 

With the government-linked China National Grains and Oil Information Centre (CNGOIC) expecting 5 million tonnes of corn imports next year, China's status as a net feed grain importer is virtually confirmed. What is not clear is where the extra grain will come from - something which is not in China's control.

 

To the government's credit, it did everything in its power to put off this day of reckoning. First, it ran down China's once vast corn surplus from over 120 million tonnes to some 20 million tonnes about a year ago (it has since recovered to near 40 million tonnes). Even after turning importer, it surprised many market watchers by keeping imports below 2 million tonnes in 2011.

 

 

 

That was partly the result of a record 2011 harvest. But it was even more due to a timely bounty of low cost feed wheat. In 2011, much wheat from Australia was degraded from flour milling to feed status. A simultaneous surplus of wheat and shortage of corn then resulted in unusual market behavior, whereby wheat frequently cost less than corn.

 

As a result, China's livestock went from using 3.5 million tonnes of feed wheat in 2006 to 13 million tonnes last year.-And the unexpected bounty of feed wheat kept last year's commonly projected 3 to 4 million tonnes of corn imports to below 2million tonnes.

 

Despite such measures China's corn demand continues to grow, and not just from the feed sector itself. While ethanol only consumes 3% of the nation's corn, the proportion used by corn syrup makers and other deep processors increased from 24% in 2009 to an estimated 29% this year, as China's consumption of sweetener-laden processed food and beverages takes off.

 

While knowing that an external source of corn is desperately required, China surprises no one by avoiding importing corn from the United States as much as possible. Towards this end, it had extensive negotiations with Argentina over the past year, to discuss the possible importing of up to 3 million tonnes of corn from that country.

 

In retrospect, the hope was immature. In the world of agribusiness optimists, South America always saves the day for feed importers: Brazil would supply most of the developing world's feed soy and Argentina the corn. In retrospect, Brazil kept up its part of the bargain but Argentina did not.

 

At first, Argentine corn exports increased a respectful 40.3%, from 10.9 million tonnes in 2001 to 15.3 million tonnes in 2006. Optimists projected that by 2015, Argentina could up exports to some 25 million tonnes. Instead, Argentina never exported more corn than the 16.5 million tonnes it did in 2009. This year, despite record planted area, at a mere 14 million tonnes, Argentina will export less corn than it did in the mid 2000s.

 

For the third time in five years, some 4 to 6 million tonnes of expected Argentine corn exports disappeared just a few months into the growing season. Can China really rely on Argentina for the 3 million tonnes of corn it was negotiating to import at this time one year ago?

 

 

 

Yet, imported corn is the only thing that can keep the wheels from falling off of China's agribusiness miracle. Corn import estimates for China vary wildly but raise disturbing implications, for both China and the world livestock industry. Import estimates for the 2015/16 season range from 15 to 17 million tonnes under Rabobank's "low-end" scenario to Olam's medium-range 20 million tonne estimate to the whopping 28 million tonnes of corn imports projected by FC Stone. Even for the next growing season's marketing year, less than 12 months away, FC Stone sees China's 4 million tonnes of corn import this year expanding to 13 million tonnes.

 

With US and Chinese corn stocks-to-use ratios near all-time lows, America pre-occupied with making ethanol, Argentina constantly afflicted by drought and Brazil eating up its one-time export surplus, where will the world market find these 20 million extra tonnes of corn?