China's Corn Glut

OMAHA (DTN) -- The fallout from China's policy of stockpiling corn could put a significant dent in global trade for feed grains in the coming years and a new Rabobank report raises questions about just how much corn China is holding.

Rabobank's analysis of China's corn stocks states it could take as long as a decade to unravel China's glut of state-owned corn inventory, which Rabobank and others claim tops roughly 250 million metric tons (9.8 billion bushels).

But here's the rub: Since China announced in March that it would end its 9-year-old stockpiling program, there has been a lot of speculation about just how large China's corn reserves are. Multiple groups and news outlets have cited the 250 mmt figure, but USDA's World Agricultural Supply and Demand Estimates projects China's ending stocks for the 2015-16 crop year at 110 million metric tons -- about 4.4 billion bushels.

In other words, USDA's economists have a very different take on China's total corn reserves than others such as Rabobank.

DTN reached out Friday to USDA about the difference between the estimates cited by Rabobank and others. Jerry Norton, chairman of USDA's World Agricultural Outlook Board, replied in an email that the WASDE report shows a forecast for all grain stocks held at the end of the marketing year. Norton noted, though, that no one outside of the Chinese government knows for certain.

"With China, the stocks estimates and projections are especially difficult as the Chinese government forbids the publication of stocks data because they consider that information a state secret related to food security," Norton stated.

Norton added that the World Agricultural Outlook Board has been criticized in recent years for overstating China's ending stocks for corn. Many analysts thought several years ago China's corn ending stocks were lower and the country would become a major corn importer. That did not happen. Norton added that using China's production estimates, trade data and assumptions about domestic usage for feed and other uses, "It is difficult to double the level of ending stocks" from the 2009-10 marketing year until now.

The goal of the stockpiling program was to help stabilize corn acreage and boost rural incomes. Chinese officials also believed such stockpiling would reduce the need for corn imports. Corn production expanded into regions actually not suited for corn, as farmers planted it anyway. From the 2007-08 crop year to 2015-16, corn acreage grew by nearly 30%, Rabobank stated.

Due to its price-support system, China's spot cash price for corn is about double the farm-gate price for U.S. corn, Rabobank cited. Over the past four years, the floor price for China's corn policy translated to farmers selling their corn more to the state than on the open market.

The result was a large corn reserve and distorted domestic prices for the crop. Outside of what Rabobank and others consider are China's reserve holdings, Rabobank pegs China's 2015-16 corn crop ending stocks at 125 million metric tons, or more than 4.9 billion bushels.

To put that into context, USDA's last projection for U.S. ending stocks from the 2015-16 marketing year that will carry over is 1.7 billion bushels.

The Chinese government plans to curb corn acreage by more than 10%, or roughly 12.3 million acres, by 2020. That will include reducing acreage in fringe production areas, Rabobank stated. The government also is pushing farmers to revisit other crops, which includes offering subsidies of roughly $22 per metric ton of production to encourage crop rotations.

Rabobank added that China's Ministry of Agriculture especially wants to see acreage and yield increases in soybeans. Under the ministry's plan, soybean acreage would increase from roughly 15 million acres to 22 million by 2020. This might not affect soybean, meal and oil imports because the government mainly wants to see growth in soybeans for human consumption, Rabobank added.

Rabobank also cited a contrast between the country's reserve holdings and the private market for corn. China's commercial market inventory is considered low with an average of roughly 30-50 days of corn on hand. Rabobank also noted there remains a lot of uncertainty about how feed and grain use will increase in China, such as whether China will increase exports or biofuel production.

Yet, the high price of domestic corn also translated into a large volume of feed-grain imports, Rabobank noted. Corn imports are limited because of tariff quotas, but those quotas do not apply to barley, sorghum or dried distillers grain. Imports of all three have steadily risen in the past four years.

In another negative for U.S. feed-grain exports, part of China's reforms are to curb those imports of other feed grains. Rabobank stated China has been working since last fall to restrict various other feed grain imports. Such efforts included China taking another run at pushing an anti-dumping investigation against the U.S. over DDGs. China imported nearly 6.3 million metric tons of DDG from the U.S. in 2015, but the country has sought to reduce those imports this year.

A U.S. Census Bureau report on exports released on Friday showed China's purchases of distillers grains from the U.S. are down 60% in 2016, but China was again the top customer in June, accounting for 37% of total exports.

Chris Clayton can be reached at Chris.Clayton@dtn.com

Follow him on Twitter @ChrisClaytonDTN

(AG/CZ)

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