September 12, 2007

 

Forecast: China's 2007 corn output may fall 2.1 percent

 

China's corn output in 2007 is likely to fall by 2.1 percent from year earlier to 142 million tonnes, due to a drought in major producing regions in the northeast, according to the Zhonggu Futures Company, which will present its forecast to the International Corn Industry Conference on Wednesday (Sep 12).

 

The forecast, offered by Zhonggu's General Manager Fei Zhonghai, is much lower than the China National Grain and Oils Information Centre's estimate of 149 million tonnes.

 

China's corn acreage in 2008 will likely be the same as the 28.05 million hectares this year or fall slightly due to rising growing costs and falling corn prices, he said.

 

He expects China's annual corn processing capacity to reach 54.75 million tonnes by the end of 2007, up from 44.65 million tonnes in 2006.

 

However, only 38.33 million tonnes, or about 70 percent, of this capacity will be used, compared with 31.89 million tonnes, or 71 percent, last year, he said.

 

Despite government controls over corn's increasing industrial use, reasonable profits will increase corn's industrial consumption steadily in the long run, but with the pace of growth likely slowing, said Fei.

 

From 2000 to 2005, China's industrial consumption of corn grew 94 percent, while domestic output grew just 31 percent.

 

The volume of corn used to make starch is expected to rise to 24 million tonnes in the 2007/08 crop year, which starts October, compared with 22 million tonnes in 2006/07, he said.

 

However, the amount of corn used to make ethanol will rise only slightly to 14 million tonnes in 2007/08 from 13.5 million tonnes the previous year due to government controls, according to the speech.

 

China's corn exports in 2007/08 will likely fall to around 1 million tonnes because of government controls, he said. China exported 4.96 million tonnes of corn from October 2006 to August.

 

Fei expected China's corn prices to rise in 2007/08 due to tight supply, with a shortage amounting to 3 million tonnes. The shortage can be met with stocks of corn, which he estimated would be 45 million tonnes.

 

With the rapid rise in feedmeal consumption, steady growth in industrial use and stable output, China is unlikely to be a net exporter of corn in 2008/09, he said.

Corn processing segment under spotlight
 

In another paper to be presented at the conference, Asia's largest corn processor said China should encourage the development of its corn processing industry, which would ensure the country's grain security.

 

Without corn processors, China will face overstock of corn in the long term, given prospects of higher output due to increasing use of agricultural technologies, said Ji Jianping, vice general manager of Changchun Dacheng Group.

 

The proportion of corn used directly as grain in domestic corn output has dwindled to less than 6 percent since 2005, from about 24 percent in the early 1990s, while processed corn used as food increased to 10-12 percent of total corn output, from 3-5 percent in the early 1990s, Ji said.

 

"(It shows) corn processing has turned the grain from coarse to fine and from simple to delicate," he added.

 

Corn processing is also significant for the development of the feed industry, as fine processing will help make full use of corn as feedmeal, he said.

 

The Chinese government has been clamping down on unbridled expansion of the industrial use of corn due to concerns over grain security.

 

It has scaled down its annual ethanol fuel production target to 2 million tonnes by 2010 from 5 million tonnes as originally planned, and has said the 2 million tonnes of ethanol fuel will be non grain-based.

 

But the government has yet to limit other industrial uses of corn, such as that for starch.

 

The National Development and Reform Commission is expected to issue guidelines later this year aimed at limiting the use of corn in industrial applications.

 

The new regulation will set "overall controls" on corn processing capacity, such as limiting the amount of corn that can be used in industrial processing to a fixed  percentage of total corn output, an NDRC official said in July.

 

Massive exports unlikely
 

In another development, a government-backed researcher said China is unlikely to continue exporting corn in large amounts due to the increasing demand for feed.

 

However, the country will not import the crop in large amounts either, as international corn prices are higher due to the development of ethanol fuel, said Ke Bingsheng, director-general of the Research Centre for Rural Economy under the Ministry of Agriculture, during the International Corn Industry Conference in Dalian.

 

Thus, corn prices will stay high in the longer term, he said.

 

If China faces a corn shortage in the future, the country may either increase its corn import quota or cut the out-quota tariff to a very low level, he said.

 

China has set its annual corn import quota at 7.2 million tonnes. For corn imports within the quota, the import tariff is 1 percent, and for corn imports outside the quota, the import tariff is 65 percent.