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Agriculture Investment

China faces challenges in rebalancing corn market

 High prices and increasing imports are expected to lead to a slowdown in corn consumption in China in the coming years, according to a new report from Rabobank.

In Rabobank’s “Chinese corn’s crossroads — upcoming shortage requires changes,” the agency said China’s domestic corn consumption delivered “robust” growth of 15% per year in 2016-17 and 2017-18, which contributed to faster-than-expected de-stocking progress.

 
“Since the corn policy reform in 2016-17, China has successfully reversed the oversupply situation by exiting the nine-year-old stockpiling program, reducing planted acreage, restricting imports of feed grains, and boosting domestic corn consumption,” Rabobank said. “As de-stocking is progressing rapidly, domestic corn prices are rising steadily from the 2017 lows. Improved prices stimulate an acreage rebound in 2018 and 2019. Policy changes are expected within three years, to further boost supplies. If not, the ending inventory will drop to a severely low level.”

The faster-than-expected corn de-stocking has come even as feed and industry use has experienced robust growth, Rabobank said. In the report, Rabobank noted that China’s corn feed use is on the rise, mainly due to limits on imports of alternative feed grains. Meanwhile, industry corn usage has grown behind a number of factors, including a series of policies to boost output and demand for more corn-based derivatives applied in food, beverages, feed, paper making and other sectors.

Rabobank said corn demand may exceed supply in China for several years unless the government reforms policies to boost supply.

“The existing 200 million tonnes of inventory (including 30 million tonnes of central reserve held for Sinograin for disaster relief) will rapidly decline to critically-low levels, forcing demand rationing,” Rabobank said. “To achieve supply-and-demand rebalance, the government’s policy decisions to stimulate domestic corn production or allow more feed grain imports will become increasingly important. Direct import of corn contributes on the supply side, while imports of alternative grains (i.e., sorghum, barley and DDGS) help reduce corn feed usage on the demand side.”

Rabobank provided three options for boosting China’s corn supply.

First, the country could increase domestic production. Possible measures include the government offering cash subsidies or crop insurance to further encourage planting or speeding up commercialization of GM corn hybrids.

A second option is removing restrictions on corn imports. Rabobank said a possible measure includes removing retaliatory tariffs and purchasing more corn from the United States and other origins. China also could lower current 65% out-of-quota tariffs for imported corn.

The final option for boosting China’s corn supply is more imports of alternative feed grains. Possible measures include terminating anti-dumping investigations on U.S. DDGS and Australian barley and removing retaliatory tariffs and purchasing more sorghum and DDGS from the United States.


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