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China’s Stocks Swell on Production Revisions

Last month, China’s National Bureau of Statistics (NBS) released revised area, yield, and production estimates for corn, wheat, and rice from 2007/08 through 2017/18. This month’s Supply and Demand balance sheets for China incorporate the NBS revisions.

Corn: The NBS revision adds a cumulative 266 million tons to production for the 2007/08-2017/18 period. While just over a half of the additional volume is added to stocks, total domestic consumption is adjusted to reflect greater use for feed and residual disappearance and fuel ethanol. The level of stocks rises sharply starting in 2013/14 reflecting government support programs at the time. Despite large stocks, any potential boost to exports should be minimal as China’s corn is currently more expensive compared to world levels. Imports remain unchanged.

Wheat: The NBS revision adds a cumulative 20 million tons to production for the 2007/08-2017/18 period. Most of the increase is added to stocks, with only a small addition to feed and residual use. Revisions were not made to food, seed, and industrial use as per-capita consumption appears to be relatively stable. China’s stocks are forecast to account for over half of global wheat stocks but are generally not accessible to world markets.

Rice: The NBS revision adds a cumulative 18 million tons to production for the 2007/08-2017/18 period. Most of the increase is added to stocks as rice is primarily used for food and per-capita consumption appears to have remained relatively stable. China’s stocks are forecast to account for more than two-thirds of global stocks, which are now at a record. Despite lower rice and wheat production in 2018/19, stocks are still forecast to climb, though at a slower expected rate. Auctions of both rice and wheat stocks have resulted in limited sales from state reserves in contrast to the rapid pace of sales from corn stocks.

OVERVIEW FOR 2018/19

Global corn production is up sharply this month mainly due to historical revisions for China. Aside from China, gains for Ukraine and Argentina more than offset reductions for the European Union and the United States. Global trade is up with greater imports for the EU, Iran, and Vietnam. Exports for Ukraine are expected at a record. The U.S. season-average farm price is raised 10 cents to $3.60 per bushel, reflecting stronger global demand, observed prices to date, and smaller stocks.

CORN PRICES

Corn prices, overall, have changed little since the previous WASDE. Argentina bids were up $3/ton to $162, while Brazil bids were lower $3/ton at $168. Black Sea bids fell $10/ton to $165, despite strong European Union demand, reflecting ample new-crop supplies in the region. U.S. bids bounced back to $165, the same as a month ago, reflecting strong global demand. Prices of all major suppliers have virtually converged, indicating strong competition.

Black Sea Corn Supplies Add to Global Competition

Corn production in the Black Sea region (Ukraine and Russia) is projected to rebound to a record 44.8 million metric tons in 2018/19. With rising acreage and improving yields, the Black Sea region is increasing its footprint as one of the key global suppliers of corn.

Despite increased production, however, domestic use is still lagging. Limited growth in the domestic livestock sectors, due to disease issues and economic uncertainty, has capped livestock and poultry feed use. Food, seed, and industrial use is stagnant, and storage capacity is neither abundant nor economic.

As a result, exports from the Black Sea are projected to rise in 2018/19. The Black Sea region has historically supplied the European Union market, as well as emerging economies in North Africa and the Middle East. Both Ukraine and Russia have been able to supply these key markets based on proximity to markets, small cargo sizes, shorter shipping times, and competitive pricing. As part of economic partnerships, China has been a steady destination for Ukraine corn.

With abundant supplies in key exporters, competition has become increasingly fierce in the grains market. Black Sea suppliers compete indirectly with U.S. exports, driven by exportoriented commodity sectors, tepid domestic demand, bio-tech free corn, and lower prices. Currency volatility in Brazil and export policy changes hindering Argentina will help further solidify the Black Sea as a key supplier during 2018/19.

China: Strong Demand for Corn Supports Prices

Various trade sources have noted that China has sold around 100 million tons of corn from the reserves via auctions through the end of October 2018. The volume represents nearly 40 percent of forecast domestic consumption for 2017/18. Despite that huge volume coming onto the market, prices in the key consuming and producing regions have remained elevated even at harvest time, reflecting strong demand for corn.

Domestic prices moved up earlier this year likely supported by various factors, such as greater use of corn feeding due to competitive prices relative to soybean meal and the rush to expand fuel ethanol production in response to the blending target of 10 percent (E10) nationwide by 2020. In addition, the government announced in February the investigation of anti-dumping and countervailing duties on imported sorghum from the United States (The investigation was dropped when punitive duties were removed in May). Convergence of these developments may have contributed to the run-up in prices in anticipation of greater demand for corn. Prices eased in the spring, but bi-weekly auctions have continued, steadily adding a large amount of corn – comparable to Brazil’s entire corn crop – to the market. Regardless, the level of prices has remained higher than a year ago and even strengthened in recent months.

Demand for corn in China is expected to remain strong supported by greater industrial use and limited supplies for alternative feedstuffs that depend on imports, mainly sorghum and distillers’ dried grains. The recent announcement by a feed association advising a lower inclusion of protein in feed rations as well as rising prices for soybean meal could further boost demand for corn.

Black Sea Trade Flows (BST Flows)

FeedDinner 2019