Chinese feed grain users face “tight market conditions”, which are raising import prospects, even as consumption prospects mount, US officials said, lifting their estimates for the country’s corn imports.
The US Department of Agriculture bureau in Beijing compared current corn market conditions in China to those in 2013-14, a season which witnessed spot futures on the Dalian market trade as high as 2,770 yuan a tonne, a figure which remains a record high on data going back to 2004.
While Chinese corn production has been curtailed by the reform of a subsidy scheme, based on guaranteed prices, which had seen state stockpiles soar, demand, which Beijing has acted to encourage, has risen faster than many commentators expected.
The bureau raised its estimate for Chinese corn consumption in 2017-18, on an October-to-September basis, to 242.0m tonnes, 2.0m tonnes ahead of the USDA’s official estimate, which is up for revision on Thursday, and taking year-on-year expansion to 10.0m tonnes.
‘Prices have soared’
A programme launched in 2014 to encourage corn consumption in the north east of China, the main producing region, through offering perks to industrial processors “has far exceeded policy-maker expectations”, the bureau said, noting that the plan appeared to have now been shelved.
“Widespread participation in” the north east promotion “has diminished surpluses of state-owned corn inventories”.
One knock-on effect is that “Chinese feed users face tight market conditions, similar to 2013-14 due to policies, growing and harvesting conditions, and competitive global prices”, rendered appealing by soaring local values.
“After slumping in November 2017 following the harvest season, [Chinese] corn spot and futures prices have soared to their highest levels in two years,” the bureau said in a report.
Price rises were particularly acute in southern China, away from the north east production region, where due to the strong domestic demand and “logistical bottlenecks… domestic feed grain supplies are not competitively priced and remain out of position for livestock feed end users”.
The bureau quoted reports of Chinese corn landed in southern China at $300 a tonne - well above the $245 a tonne for US corn “including elevation, insurance, and duties”.
While flagging official statements that end users and commercial traders “should not blindly expand operations… and expect rising imports”, the bureau pegged Chinese corn imports this season at a three-year high of 3.5m tonnes.
That figure is 500,000 tonnes more than the USDA’s current forecast, and would represent a rise of more than 1.0m tonnes year on year.
The bureau’s forecasts imply a Chinese corn production deficit of more than 26m tonnes in 2017-18, following on from a 12.5m-tonne shortfall last season, as attempts to curb production began to bear fruit.
The estimates came hours after China’s state CNGOIC think tank pegged the corn output deficit for 2017-18 at 25.6m tonnes, based on assessments of 10m-tonne growth year on year to 78m tonnes in industrial use, and a rise of 12m tonnes to 146m tonnes in feed consumption.
The CNGOIC pegged last year’s harvest at 215.9m tonnes.
And the USDA bureau flagged prospects for further expansion in demand, with 22 new processing facilities expected to open by 2020 in north east China alone, where “Heilongjiang province is expected to more than double annual capacity” within that period from a current figure of some 10m tonnes.
Work has already started on two north ethanol plants boasting annual capacity for some 4m tonnes of corn, with more in the pipeline, including one site “expected to consume 13m-17m tonnes of corn per year”.
The report was largely written before China’s announcement at the weekend of an anti-dumping investigation into imports of US sorghum, which the bureau pegged at 6.3m tonnes this season, in line with the current USDA estimate.
Prices of US sorghum imports into southern China, at $277-286 per tonne on a CIF and duty-paid basis, were more expensive than those of imports of rival feed grain corn.
The report also curtailed expectations of a rise in imports of US distillers’ grains (DDGs), after China in November ditched VAT on buy-ins.
While traders see the VAT removal as a “step in the right direction”, other duties “continue to raise the price of US DDGs above a level that the majority of end users are willing to pay”.
The bureau also noted that the boost in industrial use of corn meant that “corn by-products continue to flood local markets and nearby export markets.
“Over the past year, corn starch and sweeteners prices have fallen by nearly 20%.
As stocks rise, China is looking for new channels to dispose of corn by-products."