Chinese To Import Record Amount Of Corn In 2012

Includes: AGCO, CORN, JJA, JJG
by: T. Marc Schober

China, a historically self-sufficient corn producer, is harvesting a record large crop of 166.6 million tons for the 2011/12 season. Despite the record crop, China will still be structurally short of corn for the seventh out of eighth year as use is estimated at 170.1 million tons. The U.S. Grains Council projects China to need to import 5-10 million tons of corn for the 2011/12 season, a significant increase from the USDA's estimate of 2.0 million tons.

China has planted an estimated 76.35 million acres in 2011/12, up 3% from the previous year. Yields though are forecast to be 86 bushels per acre, which is roughly half of the U.S. yields. Chinese corn yields have held steady the past few years, which is surprising as they have been using new agronomic practices and increasing plant populations.

China's rapid population and economic growth has driven the country's demand for grains. Economists have long shown that as GDP rises and a middle class develops, consumption of protein also rises. The transition to protein has a large effect on the demand for grains as one pound of meat requires seven pounds of grain. China has 20% of the world's population and only 7% of the world's arable land making it nearly impossible for supply to meet demand.

Chinese domestic crop production has continued on an upward trend to fulfill its own grain demand. China's crop output has increased 34% in the past six years. This supply increase has not met demand as Tom Dorr, Grains Council president, estimates China's corn demand will exceed production by about 3.5 million metric tons.

Their appetite for pork, poultry and eggs has motivated the Chinese government to keep food prices affordable. In Beijing, where high food prices could trigger social unrest, stock piling corn to keep prices down is a priority. They will turn to the world's largest exporters (U.S, Argentina, Ukraine) to increase their supply.

Private analysts estimate China's carryover at 23.8 million metric tons in 2010-11, as opposed to 48.8 million metric tons in 2008-09. China’s goal for carryover is to be between 35 million and 40 million metric tons. To fill that gap, China will go to the world's largest exporters to import 5 million to 10 million metric tons by the end of 2012.

Massive imports remain to be seen as China is sensitive in regard to their portrayal in the global economy. "When they're buying corn, they're concerned that it isn't going to drive the price up for the less developed countries. And they want to make sure they do everything they can to avoid being characterized as ... entering into the world market and making it difficult for less resourceful countries to have adequate food supplies," Dorr said.

Regardless of China's concern for its reputation, importing substantial amounts of grains will have a significant impact on grain prices and global stocks. Monika Barthwal-Datta, who heads the food security program at the Center for International Security Studies at the University of Sydney, stated, "It means China is going to enter the market in a substantial manner and it is going to compete with other countries in the region that rely on U.S. corn."

Luke Mathews, a commodity strategist at Commonwealth Bank of Australia in Sydney, believes, "the explosion in Chinese imports from 1990 through today has certainly been a key driver in the oilseed market and we think a repeat of that in the corn market would certainly be a supportive influence on world prices."

China has become the world's largest consumer and importer of soybeans, importing 55 million metric tons a year, which makes up for 60% of the annual global trade. Traders believe the soybean scenario is a precedent for corn.


As China's demand for protein increases over the next decade, corn needed for livestock feed will be substantial and may result in a shortfall of over 20 million tons. The increase in demand will not be met by domestic production, forcing China to look elsewhere for corn supply. Importing record amounts of corn will leave global supplies depleted. Strong Chinese demand may result in corn prices well above the record $8 a bushel set in June and drive profits for the largest global exporters of corn.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.