Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors. Output of China's Corn Industry Increases While Demand Decreases - China’s corn export volume represented a year-on-year slip of 93 percent to 1,874 tons in April, 2009. From January to April, 2009, the corn export volume declined year on year by 89 percent to 12,347 tons.



Since October, 2008, Chinese government has planned to reserve 40 million tons corn in northeast areas, making up 25 percent of the total corn output. This measure heightens the corn price, which on one hand protects the farmers’ benefits and on the other hand throws the corn processing industry into a crisis.


Affected by the financial crisis, corn processing industry suffers flat sales. Once the corn price goes up, the cost of processing enterprises also increases and thus profit drops again.


Take Huarun Cerestar Maize Industry Co., LTD for example. From January to July in 2008, the company’s total profit amounted to RMB 15 million but began to drop by RMB 3 million to RMB 7 million per month from August. The total loss of the second half of 2008 reached RMB 30 million, equal to the normal annual profit.


The annual corn starch production capacity of COFCO Bio-chemical Energy (Yushu) CO., LTD amounted to 400,000 tons. But from October 2008, the company suffered a loss of RMB 200 to RMB 350 per ton. Although enterprises were reserving corn continuously, the corn inventory decreased by 50 plus percent from that of 2007. Due to the reverse corn prices in northeast areas and central plain areas, the corn starch was mainly sold to pearl delta regions which were attacked severely by the big gap in prices. After October 2008, the starch price showed a monthly slip of RMB 50 to RMB 100. The total loss of Q4, 2008 exceeded RMB 20 million.


Under the gloomy macroeconomic situation, the structure of demand and supply of corn still remained loose. Although the government helped reserve part of corn, the stagnancy of corn-processing industry and breeding industry also led to the oversupply of corn. Moreover, the H1N1 epidemic emerging recently added difficulties to corn sales.


The price of domestic corn in northeast areas remains high at present while the soybean price stays low, which gives rise to the situation that some northeast farmers switch from soy bean to corn. In 2009, farmers in China are active in planting crop, such as rice and corn, but it is predicted that the area of soy bean in Jilin province will be less because part of soy beans have been replaced by corn. As a result, there is no doubt that the supply of corn will exceed its actual demand. China’s corn output in 2008 amounted to about 156 million tons and the sales just reached 133 million tons, with surplus of 23 million tons.


Because of the government’s policy of temporarily reserving corn, the domestic corn price has been apparently higher than international corn price since early 2009. Although Chinese government cancelled the export tariff of corn on December 1st, 2008, there was still a big gap between domestic price and international price, which made China’s corn export hard to fulfill. From January to March of 2009, China’s total corn export volume decreased year on year by 83.45 percent. Exports to Taiwan reached 6285 tons, with 4162 tons to North Korea and 26 tons to Japan. But from January 2nd, 2009 to April 2nd, 2009, Japan’s corn imports from USA amounted to 4.1284 million tons, a year-on-year slip of 205,300 tons. The transportation fare from China to Japan was much lower than that from USA to Japan while the total price of China’s corn export was higher than that of USA.


In December 2008, Chinese government decided to reserve 40 million tons corn in northeast areas and the actual reserve volume reached 35.1769 million tons, making up 87.94 percent of the planned amount, according to the statistics by April 25th, 2009. It is predicted that the actual reserve volume this time would reached 35.5 million tons, accounting for about 66 percent of the total corn output of northeast areas and about 34 percent of China’s corn output. These data show that China’s corn price will be wholly under control of Chinese government.


As the corn reserve ends, people have switched their attention to whether Chinese government will successfully sell those reserved corn. Related government officials have declared several times that the reserved corn will be sold at the cost price on wholesale market. Calculating the reserve price in 2008 plus the purchase price, parching price and transportation fare, the sales price of corn may reach RMB 1600/ton and the knockdown price will exceed RMB 1800/ton. Perhaps it is hard for corn-processing enterprises and feed enterprises to accept such a high price.


Noticing the corn’s price advantage in North China, many enterprises in south areas switch to corn in North China, which leads to the state that the sales price in south is lower than that of northeast areas. At present, the CIF price of American corn to Guangzhou is RMB 1500/ton while the CIF price of northeast corn to Guangzhou exceeds RMB 1800/ton, which makes corn in northeast areas hard to sell. In addition, if the starch enterprises or alcohol enterprises purchase corn at RMB 1800/ton, they will suffer a loss of RMB 700/ton to RMB 800/ton of their products. Thus, corn sales cannot rely on the corn-processing industry. It can be implied that the gloomy corn consumption will not clear up soon and it is also difficult for Chinese government to sell those reserved corn at cost price.


Corn acreage in China’s major production areas will continue to increase in 2009, and corn is expected to harvest if there is no severe disaster in future.


At present, stocks for corn in northeast areas are insufficient, especially in Jilin and Heilongjiang. For example, more than 10 million tons corn in Jilin are stored in open-air places.


China’s corn stocks are abundant currently and the stock pressure of northeast crop will see a substantial increase after the autumn grain crops pour into market in 2009.



Source: China Research and Intelligence


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Eileen Gu