August 13, 2004

 

 

China To Reap Record Soybean Crop

 

China will harvest a record soybean crop this year after high prices encouraged more plantings, reducing demand for imports from the U.S., Brazil and Argentina.

 

Chinese soybean imports will fall 21 percent to 16.9 million metric tons in the year ending Sept. 30, from a record 21.42 tons in the previous year, according to the U.S. Department of Agriculture forecast in a world supply and demand report. That figure is down 6.1 percent from last month's prediction. China is forecast to import 23 million tons next year, down from last month's estimate of 24 million.

 

"A lot of people in the trade here and in China think those numbers are still too high," said Rich Feltes, a vice president and director of research for Refco Inc., at a press briefing at the Chicago Board of Trade. "Last year we had strong and growing global demand for soybeans, and it is the complete opposite this year."

 

China will harvest 17.5 million metric tons of soybeans, 9.4 percent more than last year, the USDA predicted. The Chinese government cut agricultural taxes by as much as 25 percent this year and boosted subsidies to encourage farmers to plant more.

 

Estimated soybean use in China for this year was reduced 3.1 percent to 35 million tons from last month's estimate. The forecast for next year's consumption was cut 2.1 percent to 38.2 million.

 

China's two outbreaks of bird flu this year have caused $240 million in damage to the domestic poultry industry, according to a July report by Beijing Orient Agribusiness Consultant Co., an agriculture ministry affiliate. The volume of poultry exports fell 72 percent to 32,866 metric tons during the first five months of this year compared with the same period a year ago.

 

Bird flu and a collapse in soybean processor profit margins have reduced demand for soybean and soybean meal, Feltes said.

 

"China will play less of a role in the year ahead than what they have been in the last five years in soybean markets," Feltes said.

 

Soybean futures rose to a 15-year high of $10.64 in March before falling on expectations for big crops in China and the U.S. Soybeans for November deliver rose 30.5 cents, or 5.5 percent, to $5.8525 a bushel today on the Chicago Board of Trade, the biggest gain since June 1.

 

Corn Production

 

Corn production in China, the second-biggest producer, will rise 3.6 percent to 120 million tons from last year, the department said. The estimate is up from the 115 million tons forecast last month. China's crop will be the fifth-biggest, the USDA said.

 

Chinese corn demand will exceed domestic production for a fifth consecutive year, reducing surplus inventories on Sept. 30, 2005, to 28.9 million tons which is a 26-year low, the department said. Reserve inventories have fallen 77 percent in the last five years.

 

China will continue to be a net exporter of corn for the ninth consecutive year, shipping 4 million tons this coming season, down from 8 million estimated last year, the department said. China was the fourth-biggest corn exporter last year, behind the U.S., Argentina and South Africa.

 

"China is enjoying a production recovery," Feltes said. "However, the nation is a 'wild card' in world trade because its grain inventories are 'still a state secret'," Feltes said.

 

Wheat production in China, the largest producer and importer, will rise for the first time in five seasons with a 90 million tons forecast compared with 86.5 million last year, the department said. Production reached a peak of 123.3 in the 1997-1998 season.

 

Wheat Reserves

 

Chinese reserve inventories of wheat as of June 30, 2005, will fall for a fifth consecutive year to a 21-year low of 38 million tons from 43.2 million this past June, the department said. A reserve of 35.2 tons was forecast last month.

 

The Chinese government allocated RMB11 billion in direct farm subsidies from Jan. 1 to June 15, and reduced agricultural taxes by over RMB23 billion.

 

"The shortfall between consumption and production is considerably big," Zhu Changguo, agricultural research director of the State Council said at a conference in Beijing in July. "We have to compensate with grain reserves."

 

China is trying to reverse a decline in grain harvests caused by the conversion of farmland to industrial use. Grain production in 2003 fell for the fourth consecutive year to a 14-year low of about 430 million metric tons, contributing to a 5.3 percent jump in inflation in July from a year earlier, the National Bureau of Statistics said on its Web site today. That would be the biggest increase since February 1997.

 

"The rising inflation rate is an indication the economy is heating up and that will mean more demand for meat and the grain needed to feed those animals," said Jeff Beal, a consultant for Strategic Marketing Services Inc. in Rockford, Illinois. "China is a huge economy with a growing urban population that is demanding more food."