August 16, 2012
Due to a serious pest infestation which may drive global prices even higher following rises provoked by drought in major producer countries, China's 2012 corn output is expected to fall below earlier expectations.
Some analysts are now forecasting that China could lose up to four million tonnes of its next corn harvest to pests, compounding market supply problems caused by drought or below-normal rainfall in major producer nations like the US, Ukraine and India and further pushing up prices that have already risen around 40% in the past two months.
As much as 10% of the land in China planted with corn has been infected by armyworm caterpillars, pests which can lay waste to crops, in what is the most serious infestation in a decade, China's agriculture ministry said.
As of Tuesday (Aug 14), about 3.3 million hectares of farmland, or about a 10th of the area under corn in the world's second-largest consumer of the grain, has been affected, with about 430,000 hectares suffering "serious" infestation, it said in a statement.
China became a net corn importer in 2010, and its rising demand is one of the major reasons for high corn prices seen in the last two years. US corn on a delivered basis in East Asia is now offered around US$385-390/tonne, basis cost and freight, up 40% since mid-June. The development was good news for China's listed pesticide makers, whose shares have surged in the past two days as the extent of the problem became clearer.
Jiangsu Lanfeng Biochemical Co. (002513.SZ) ended the Wednesday (Aug 15) morning session up 3.7% after closing up 10% daily upper limit Tuesday (Aug 14), while Shenzhen Noposion Pesticide Co. also closed up 10% Tuesday (Aug 14).
The affected areas include the provinces of Heilongjiang, Jilin, Liaoning and Hebei as well as Inner Mongolia Autonomous Region, the ministry said. Combined corn output in the five regions accounts for about 45% of China's total corn production.
"Armyworm [infestation] happens almost every year, but this year's outbreak is very serious," said Ma Wenfeng, an analyst with Beijing Orient Agri-business Consultant Co., adding the reason was excessive rain this summer in northern and north eastern China.
Ma expected the pest infestation to reduce China's 2012 corn output by around four million tonnes to about 197 million tonnes, which is still a record. However, imports and inventories are likely to offset the shortage.
"This will have a minimal impact on the corn supply-demand balance in China," Ma said, referring to high government stocks and imports in the first half of 2012.
The state-backed China National Grain and Oils Information Centre Wednesday (Aug 15) lowered its 2012 corn forecast to 197 million tonnes from an earlier estimate of 197.5 million tonnes. The London-based International Grains Council has forecast China's corn imports in the 2012-13 year that began July 1 at five million tonnes. However, actual imports could be higher if the pest situation worsens.
The near-month corn futures contract on the Chicago Board of Trade rose to an all-time high of US$8.4375 a bushel Friday (Aug 10) after the USDA reduced the country's output forecast by 17% to 274 million tonnes, a five-year low.
The US is the world's largest corn exporter, but with average yields expected at a 17-year low, East Asian buyers are scrambling to cover their requirements from elsewhere. In India, local corn prices have increased more than 30% since early June as rains played truant. Exporters are reluctant to contract any fresh sales, fearing that a ban may be imposed by the government later this year.
Plantings are running behind schedule, and even though growers are trying to make up for the lost time, yield and output will definitely be lower, said Amit Sachdev, the India representative of the US Grains Council.
Since last October, Ukraine's exports had offset tight supply in the US, but the country's crop is also suffering from dry weather. Last month, London-based IGC lowered Ukraine's corn output and exports forecast by 12.5% and 4.3%, respectively.
