USDA GAIN: China Grain and Feed Update November 2012

USDA GAIN: Oilseeds, Cotton, Sugar, Grain and Feed

Reports » China » USDA GAIN: China Grain and Feed Update November 2012

06 November 2012

MY 12/13 corn production, up 3 percent to 198MMT, and lower domestic prices could lead to higher corn utilization in feed in substitution for wheat. High US corn prices, however, affects corn imports and impacts US DDGS competitiveness. Termination of the anti-dumping investigation and an interest in maintaining feed quality could sustain DDGS import interest. Wheat production forecast remains unchanged with low global supplies and high world price dampening MY 12/13 wheat import forecast to 1.5MMT. Rice production forecast remains unchanged. Government support for grain production remains strong.

Corn

Production

MY 2012/13 corn production is forecast at 198 MMT, up 3 percent from the previous year, due to higher acreage and favorable weather. In Heilongjiang, farmers reportedly substituted close to 15 percent of soybean acreage for corn in expectation of higher profits.

Crop conditions in the north China plain remained favorable, with low moisture and less mold damage than last year, according to the National Grain and Oil Information Center (NGOIC). Post field visits in the northeast confirmed a low rate of insect or mold damaged corn. In parts of Jilin and Liaoning, however, an August typhoon caused severe lodging and overall below normal yields.

In August, Chinese state media reported that an armyworm outbreak affected more than 50 million mu (3.4 million HA) in some north China plain and northeast provinces, but noted that overall damage was low. According to various agricultural contacts, in some areas, farmers controlled the infestation with pesticide, however, the overall eradication rate is unclear. In areas of high armyworm damage, some farmers have reportedly sought redress through agriculture insurance policies.

Feed Consumption

For MY 2012/13, feed consumption is revised up 2 MMT to 141 MMT. During harvest, domestic corn prices dropped making it more competitive than wheat. For example, in comparison to last month, October prices for Shandong-produced corn fell by RMB 50 to 2,260 per ton. Feed mills reported that Henan and Shandong corn is now approximately RMB 100 per ton less than local wheat prices. Feed mills located in Jiangxi and Hunan provinces also reported similar price differentials. Unlike previous years, lower corn prices may increase corn feed usage instead of wheat (see Gain CH12022 for information on increased wheat substitution for corn in MY 2011/12).

Trade

In MY 2012/13, corn imports are forecast to fall to 2 MMT on high U.S. corn prices. Many imports were contracted earlier in CY 2012 when Chinese corn was less price competitive. The U.S. No. 2 yellow corn CIF import price (for October delivery) is approximately RMB 2, 850 per ton (including tariff and VAT), which is approximately RMB 300 per ton higher than current domestic corn prices in Guangdong.

DDGS Imports

From January to August 2012, Chinese DDGS imports totaled 1.75 MMT, a significant rise over last year (973,000 MT) on competitive U.S. DDGS prices. According to Chinese customs data, from January to August 2012, U.S. DDGS CIF import prices averaged between $290-320 per ton, or RMB 100 per ton lower than domestic corn. Moreover, in June 2012 the Ministry of Trade and Commerce (MOFCOM) terminated the anti-dumping investigation on U.S. DDGS exports, which may also have incited more confidence in the trade.

Because of high U.S. corn prices, U.S. DDGS CIF import prices have risen to $370-415 per ton (for October or November delivery). Although U.S. DDGS imports may ease due to high prices (less competitive to Chinese domestic corn), some larger feed mills may continue purchasing DDGS to maintain quality consistency.

Wheat

Production

The MY 2012/13 wheat production forecast is unchanged from the previous update. As noted in the last quarterly report (see Gain CH12052), although official Chinese government sources estimate another annual rise in Chinese wheat production, Post believes the official Chinese projection is too high. From July to September 2012, the average wheat price rose approximately 7 percent. For October, major wheat producing provincial wheat prices (Hebei, Shandong, and Henan) are even higher at RMB 2,280 per ton. As illustrated in the price graphs below, during 2010 and 2011 wheat prices did not jump after harvest (due to higher available market supplies). Interestingly, during this same time frame end-users were increasing their utilization of feed quality wheat due to high domestic corn prices. If MY 2012/13 Chinese wheat production is as high as Chinese authorities estimate, it is unclear why wheat prices are rising, especially if expectations are that more feed mills may switch to less expensive corn.

Regarding overall wheat safety and quality in feed, industry contacts believe that some distributors and middlemen may be mixing MY 2012/13 fusariuim graminearum (head blight) affected wheat with fungus-free wheat so that the new crop can still be utilized (before selling it to end-users). If true, it is unclear how wide-spread this activity may be. To date, industry end-user contacts, such as feed mills and livestock producers, said they have not noted any problems with feed product quality. If toxin levels are too high, this could negatively affect livestock health and production.

In September, the National Development & Reform Commission announced that the MY 2013/14 floor price for wheat will rise by 10 percent to RMB 2,240 per ton. The government floor prices function mainly to encourage grain production and support farm incomes. In the north China plain, most winter wheat is planted in October.

Trade

In MY 2012/13, wheat imports are forecast down to 1.5 MMT because of lower global exportable supplies and higher international prices. According to trade sources, the U.S. soft red winter (SRW) CIF import price (for November delivery) is estimated at RMB 2,900 per ton (includes tariff and VAT), and is 400 RMB per ton higher than current domestic wheat prices in Guangdong.

Rice

The MY 2012/13 rice production forecast is unchanged from the previous quarterly report. Industry contacts are not aware of any pest outbreaks (as forecast by the Chinese government earlier in the summer – See Gain CH12052).

From June to September 2012, Japonica rice (unmilled) prices rose 6 percent. Industry contacts noted this rise was due to low commercial stocks (end of the marketing year and before the harvest). Because of rising rice prices, Heilongjiang province officials auctioned Japonica rice at RMB 3,100 per ton in September 2012.

According to National Grain and Oil Information Center, from November 2011 to February 2012, to encourage rice production and support farmer incomes, the provincial government purchased more than 10 MMT of Japonica rice in Heilongjiang at RMB 2,800 per ton for temporary state reserves. This price was higher than the central government set price for Japonica of RMB 2,560 per ton in MY 11/12. Recently, NGOIC also announced that from November 2012 to March 31, 2013 the floor price for Japonica rice in Heilongjiang, Jilin, and Liaoning will be RMB 2,800 per ton. The Japonica rice harvest starts in October in Heilongjiang, which produces half of China’s Japonica rice.

Government Support for Grain Production

The following extension programs are funded, implemented, and/or directed under the Ministry of Agriculture (MOA). Although the investments are large, it is unclear how effective or what impact they have on Chinese agricultural production, which supports more than 100 million farmers.

According to MOA, in 2010 and 2011 it awarded grants totaling RMB 21 and 22.5 billion to over 1000 counties as a reward for high grain production. During the same time frame, the Ministry allocated RMB 1 and 1.5 billion to build grain, oilseed, and sugar demonstration farms (totaling 56 million mu (1 HA= 15 mu)) to educate farmers on how to increase yields. In 2011, RMB 500 million in subsidies supported local disease prevention/control organizations that specialize in eradicating or controlling pest infestations in corn, rice, and wheat (the subsidy covered 800 counties and was applied towards pesticide procurement, field operation equipment, machinery maintenance, and pest surveys). MOA also provided subsidies for small-scale water conservancy or irrigation projects and agricultural insurance.

USDA GAIN: Oilseeds, Cotton, Sugar, Grain and Feed