October 22, 2003
Declining China's Corn Stocks May Help Push Up US Corn Prices
Declining corn stocks in China combined with average to slightly lower production estimates could translate into higher prices for U.S. corn growers, according to a survey of China's corn crop by the U.S. Grains Council.
Speaking at a press conference in Beijing, China, dated on October 6, Todd Meyer says expected reductions in Chinese exports should have some positive impact on U.S. corn prices, because that will increase the demand on corn from other origins on the world market.
"As harvest numbers and ending stock numbers become known to the market that should limit the amount of corn available for export for next several months," says Meyer, who serves as Beijing office director for the U.S. Grains Council. "I would be surprised to see a significant amount of corn exported in calendar year 2004. The numbers lead toward a significant reduction, but it's difficult to put numbers on it, because it's not all based on fundamentals. If fundamentals alone were ruling it, there would be a rather large dropoff of Chinese corn exports."
Corn stocks are still available in China, he says, and pricing issues are also expected to come into play. "Prices are not yet at a level that warrants a major import level. Under the WTO agreement the market should decide that, but I'm not sure we'll actually see that," he says.
Two main corn-growing areas in China are the northeast and the north China plains, each responsible for about one-third of Chinese corn production. The remaining one-third of corn production is scattered throughout the rest of the country.
Both areas experienced a 4 - 5% reduction in planting area this year due to an increase in oilseed plantings in both areas, and an increase in cotton plantings in the north China plains.
According to Meyer, corn yields in these main corn production areas are projected to average somewhere between 90 to 100 bushels per acre. "That's probably an average or slightly below average yield for that area. It's not spectacular, but not a washout either," he says.
Dry conditions during the winter and early spring delayed planting and affected crop emergence somewhat in northeast China. Then, the summer turned wet and cooler than normal, which has delayed maturation in some areas. Meyer says, "In past years drought has been a key problem for growers in this region, but it's been quite different this year."
Wet and cloudy conditions in recent months have also hindered development of the north China plains summer-planted crop.
In both regions, corn yields are expected to be similar to last year's mediocre crop. "We didn't see anything spectacular during our recent tour of the area, but we didn't see a lot of poor fields, either," Meyer says. "We're expecting yields to hit about 90 to 100 bushels per acre, with a slightly higher range expected in the better corn-growing areas in the northeast. As you go further north in the plains region, the outlook is much worse, and I expect much of the corn won't get harvested. It's been very cool and quite cloudy."
Meyer says he is putting an upper limit on China's corn production of 115 million tons. "We're waiting for the remainder of the growing season to see how much lower that could be, but we don't think it will go above that 115 million tons level. Other analysts have slowly come down on this crop, and there is a general decline in production estimates for China's crop."
In 2002, Meyer says, China exported 11.3 million metric tons of corn. This year he estimated the number would be somewhere around 13 million metric tons. In term of imports, he says, "China has imported very little since its last major import campaign in 1995. Since then there have been sporadic shipments here and there, and there's always been some corn coming in to the country. It's been since March 1996, though, since any shipments of significant size were imported into China."
The amount of China's corn exports plays an important role in ending stocks.
However, Meyer says, "There are not a lot of hard numbers available on China's corn stocks. There are a lot of feelings, guesses, and anecdotal info. It's quite clear stocks are being reduced. The livestock industry has recovered quickly after the SARS outbreak, there is quite a bit of feed demand, and we do feel stocks are continuing to come down from the very high levels of 1999-2000. We're taking off chunks every year, but the numbers are still very speculative."
Corn prices for Chinese growers are maintaining a fairly strong level, Meyer says. "The potential is there for prices to go through a seasonal fluctuation as the crop hits market, and it could be exacerbated by a reduced guarantee that the government will buy this crop," he says. "Farmers may be looking for other buyers to take the crop immediately at harvest, instead of depending on a government guarantee, and holding grain in storage. Together, that could mean more of the crop in the market at harvest."
What Meyer is referring to are ongoing government reforms in China's grain sector. "There's not a lot of noise about it, but China appears to be trying to move to a market-based pricing mechanism. They are seeing an opportunity to scale back purchasing with fixed prices or protective prices," he says. "While the specifics are a bit sketchy at this point, farmers are anticipating the time, whether it will be this year or next year, when protective prices will cease."
Domestic demand for Chinese corn is also increasing in both the livestock and industrial sector. Fuelling the demand is a government mandate that begun on October 18, all of the gasoline in one major province be converted to a 10% blended ethanol fuel.
The U.S. Grains Council says that because of the lack of timely and reliable reporting by other entities, it conducts its own on-the-ground survey of China's corn crop. Participants travel to key corn-producing provinces to take a first-hand look at crop conditions, and meet with local farmers, traders, end-users and government officials.