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China’s drought leaves much to speculate

Sept. 10, 2009 -The Chinese corn crop is said to be in the throes of severe drought, which makes US corn, and distillers' dried grain with solubles (DDGS) the most likely supplement for China, which happens to be the second-largest corn producer in the world.

 


September 11, 2009
By United States Grains Council

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Sept. 10, 2009 

Sept. 10, 2009 

China, the second-largest corn producing country, is reportedly suffering from severe drought conditions in areas of their corn producing regions. As a result, China’s feed grains production is projected to fall, minimizing their competitiveness in export markets and allowing speculation about the likelihood of imports.

The official corn productionnumber for the 2009/2010 crop year from China’s National Grains and Oils Information Center’s September report was 165.5 million metric tons (6.5 billion bushels), down approximately 1 million tons (3.9 million bushels) from their August report.

In the USDA’s World Agricultural Supply and Demand Estimates released Aug. 12, China’s corn production was projected at 162.5 million tons (6.4 billion bushels). USDA will update its estimates on Sept. 11. According to Cary Sifferath, US Grains Council senior director in China, Chinese corn is currently priced too high to compete in export markets. China’s corn prices are currently isolated from the rest of the world due to no imports or exports, pushing prices higher than the world average. China exported 5.27 million tons (207.5 million bushels) of corn during the 2006/2007 crop year. Since then, there have only been minimal corn exports.

Based on China’s expected drop in corn production, it is unlikely significant quantities of corn will be exported during the 2009/2010 crop year. Whether or not China will import corn is anybody’s guess, according to Sifferath, but the United States will be the likely origin if the time comes.

“Today, China would most likely choose US corn due to prices and freight rates. With current corn prices in the United States and China, the United States has a $30 to $40 per metric ton spread, even after adding the 13 percent value added tax and the one percent duty upon arrival,” he said. “With spreads that wide of a margin, we still have not seen or heard of anyone looking to import corn, at least not yet. China probably has enough stocks to hold them over now and through the harvest of the new  crop. If we see China needs to import corn, it will be next year as we move into April, May and June, when stocks might be tight enough for them to see the need to import. It is still a guessing game when trying to gauge when or if China might import corn. Importers worry government officials might try to find something wrong in the shipment and attempt to delay or keep the corn from being unloaded and moved into the feed sector. This is part of the reason imports of US distiller’s dried grain with solubles (DDGS) have increased over the last few months.”

Exports of US DDGS have reached about 150,000 tons so far, more than 18 times the 8000 tons exported in all of 2008. Sifferath expects DDGS exports to continue upward to minimize losses resulting from the high price of corn in China. If China did need to import corn from the United States it would have an impact on corn prices in the United States.

“I don’t think the current prices in Chicago are reflecting any corn imports from China,” Sifferath commented. “If the day comes when China buys corn, it would have an impact on corn prices in Chicago and at the farmer level. How much would depend on how much corn China actually purchased. We are continuing to stimulate demand in China’s swine and dairy industries in order to keep demand for feed ingredients on an upward trend. By increasing demand, we keep China’s corn used domestically and out of the export marketplace, and increase opportunities for US farmers.”

The accuracy of China’s corn production projections are often questioned, giving the Council reason to conduct corn production tours, which are currently taking place in the Northern China Plain regions of Henan, Anhui, Hebei and Shandong Provinces. The Council will also have a corn harvest tour in drought stricken Northeast China the week of Sept. 21-25.


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