China. Grain and Feed Annual. Apr 2013 May 2, 2013
MY 2013/14 wheat production is estimated at 118 million tons on strong profit signals and growing conditions. Corn acreage and production are estimated to rise slightly as are imports due to rising feed and industrial demand. Rice production is forecast at 206 million tons on average yields and faces growing imports of lower quality rice from Vietnam and Pakistan due to its price advantage. Government grain support policies including direct payments to farmers, subsidies for the purchase of farm machinery, and price support programs will continue to expand. Even so, limited arable land, water, and other resource constraints will hinder future Chinese grain production.
For marketing year (MY) 2013/14, wheat production is estimated at 118 million tons on better than average yields. For MY 2012/13 and MY 2013/14, livestock farmers are expected to use less wheat for feeding applications on expectations of relatively lower corn prices. If head blight affected wheat comprises a significant proportion of stocks, this would most likely increase wheat prices and influence future import decisions.
MY 2013/14 corn acreage and production are both estimated to rise one percent to 35.3 million hectares and 210 million tons, respectively, over last year. Provincial governments expressed concern that recent wet weather and snow might affect planting pace (which will start around the end of April in the northeast), but it is unclear if this will have an effect. For MY 2012/13 and MY 2013/14 corn imports are estimated at 3 million tons and 4 million tons on strong feed and industrial demand.
For MY 2013/14, total (rough) rice production is forecast at 206 million tons on average yields. In MY 2012/13 and MY 2013/14, rice imports are estimated at 2.4 million tons and 2.5 million tons. In the last two years, lower quality rice from Vietnam and Pakistan dominated the import market due to its relatively lower price over domestic varieties.
Productions costs are expected to continue to rise. According to a National Development and Reform Commission (NDRC) survey on grains (including corn, rice, and wheat), in 2012 combined input, land, and labor costs climbed 10 percent to RMB 13,140 per Ha. Specifically, land, fertilizer, and seed prices rose five, nine, and 17 percent. For 2013, some industry contacts believe the rate of grain production costs increases will slow, with some estimates as low as six percent on less expensive fertilizer due to expectations of lower coal prices and production surpluses.
For marketing year (MY) 2013/14, wheat production is estimated at 118 million tons on better than average yields. MY 2012/13 wheat production is revised to 120 million tons to correspond with the official USDA estimate. According to the Ministry of Agriculture (MOA), MY 2013/14 winter wheat conditions are rated above average, with planted area rising by 1 million mu (or 660,000 Hectares (Ha)). Reportedly, this increase is due to a higher government purchase price for wheat (see Policy section), which offers better profit margins than other competing crops such as cotton (estimated to have lower acreage in the north China plain).
For MY 2012/13 and 2013/14, overall flour consumption remains stable, although demand continues to grow for higher value bakery products. Industry sources reported that the protein content found in imported wheat varieties are preferable for producing specialty bakery goods. Imported wheat is used to make cakes, biscuits, and Asian noodles. However, China’s Tariff-Rate quota (TRQ) limits the purchase of wheat imports, which invariably affects the growth of China’s burgeoning bakery industry.
For MY 2012/13 and MY 2013/14, livestock farmers are expected to use less wheat for feeding on expectations of relatively lower corn prices. Moreover, because the MY 2012/13 wheat crop was affected by head blight (industry sources noted high vomitoxin levels in parts of Jiangsu, Anhui and Henan provinces (see GAIN 12066),) many feed mills reportedly are utilizing less wheat due to feed safety concerns. Because of head blight, Post believes MY 2012/13 feed consumption includes a relatively higher proportion of residual or loss.
For MY 2013/14, Chinese wheat imports are estimated to shrink to 2 million tons on strong wheat production. Due to expectations of higher international wheat prices and relatively more competitive domestic corn prices, trade sources believe that the Chinese government is unlikely to issue any additional wheat import quotas for feed use. In MY 2012/13 wheat imports are estimated at 3 million tons. The private TRQ is primarily utilized to import high quality wheat (See wheat consumption section). Because of low international wheat prices, the Chinese government reportedly utilized the state TRQ to import additional wheat for feed use.
Industry contacts noted that some flour mills (particularly those located in north China) do not want to purchase U.S. winter wheat since local CIQ officials may require fumigation for Tilletia controversa (TCK), which would be an additional expense. Because of the possibility of added costs, last year some end users purchased Australian wheat in lieu of U.S. winter classes.
For MY 2013/14, China’s wheat exports are estimated at 800,000 tons, unchanged from the previous year. COFCO, a state owned enterprise, is the only entity that can export wheat. China primarily exports flour or processed products to neighboring countries or Special Administrative Regions such as North Korea, South Korea, and Hong Kong.
State grain companies purchase and store the majority of Chinese wheat, and have the option to utilize preferential government loans for these activities. Because the government holds the majority of wheat reserves, flour mills buy directly from central government auctions, which are held weekly by the State Administration for Grains (SAG) (for information on auctions see GAIN CH13004).
There are no official statistics available for wheat stocks. As noted in the quarterly update GAIN CH13004, a large portion of MY 2012/13 Fulsarium-infected wheat is held in state reserves. Reportedly, wheat can be stored for 3 years in state reserve grain silos. Although stocked for use in future marketing years, this wheat may be unusable for feed or food applications. If head blight affected wheat comprises a significant proportion of stocks, this would most likely spur wheat prices and influence future import decisions.
MY 2013/14 corn acreage and production are both estimated to rise one percent to 35.3 million Ha and 210 million tons. Farmers are expected to grow more corn over soybeans or pulses (see GAIN13007) on expectations of higher returns. State media reported that key grain producing provinces plan to increase overall grain production by encouraging crops with higher yield potential. For instance, the Heilongjiang local government wants to expand corn and rice acreage at the expense of soybeans. It has set a corn acreage target of 100 million mu (or 6.6 million Ha), an 11 percent increase from last year.
For MY 2013/14, provincial governments expressed concern that recent wet weather and snow might affect planting pace (which will start around the end of April in the northeast), but it is unclear if this will have an effect. Industry expects a slower sale rate for northeast corn on expectations of a bumper crop in the north China plain. Because of lower transportation costs, south China end-users (e.g. feed mills) first source corn from the north China plain before buying from northeast provinces.
In MY 2012/13 industry contacts believe favorable weather contributed to good corn quality in the north China plain. In the northeast, sources report that post harvest rainfall and snow negatively affected corn quality by increasing moisture levels. During the winter, northeast Chinese farmers allow the corn to freeze then, in the spring, immediately dry the corn. However, this year continued snowfall added additional moisture. Reportedly, from March to April, the National Development and Reform Commission (NDRC) asked northeast state grain companies to take all measures to help mechanically dry and purchase the corn. Lower quality corn will be sold at a discounted rate, and should not enter the strategic reserves (which requires a higher grade). It is unclear how much of the corn will be suitable for stocks or feed usage.
For MY 2012/13 and MY 2013/14, livestock industry feed corn use is expected to continue to grow on high Chinese consumer demand for more expensive meat protein. By the end of CY 2012, many feed mills reported substituting less wheat for corn due to more competitive prices (See wheat consumption section). According to the National Bureau of Statistics, in 2012 meat production (including pork, beef, mutton, and poultry) rose 5.4 percent to 82 million tons. For calendar year (CY) 2013, Post estimates that pork and poultry production will increase four percent.
In calendar year (CY) 2013, the livestock industry may further consolidate because of government incentives, such as recent announcements to offer more insurance subsidies and tax incentives for larger scale farms. In addition, rising feed and labor costs may also encourage smaller producers to exit the industry, as tighter profit margins may eventually become untenable. Current hog prices are very low, and industry contacts note if prolonged may further incite exodus by backyard livestock producers. Pork industry contacts estimate that in CY 2012 corn prices increased five percent, while soybean meal and rice bran prices climbed more than 10 percent.
Although MOA’s China Feed Industry Association tracks national industrial feed production, there are no official numbers for overall feed usage. Larger farms normally use compound feed, while smaller household operations typically utilize concentrate.
For MY 2013/14, total industrial corn use (mainly impacted by starch and ethanol production) is forecast to slow to 8 percent on less domestic demand. Major factors include less ethanol demand in the chemical/pharmaceutical sector due to slower industrial growth and by the general public because of a recent plasticizer food safety scandal (which affects liquor (bai jiu) production). For CY 2012, overall ethanol production (composed of hard liquor, fuel ethanol, and chemical/ pharmaceutical) is estimated to grow five percent to 6 million tons.
For MY 2012/13 and MY 2013/14 starch sugar consumption is estimated to rise by 10 percent on more competitive prices. More beverage and food processing sectors are reportedly using more starch sugar (in lieu of natural sugar) to increase profit margins.
For MY 2012/13 and MY 2013/14 corn imports are estimated at 3 million tons and 4 million tons on strong feed and industrial demand. For MY 2012/13, U.S. corn exports were uncompetitive due to high prices. Depending on export prices and Chinese domestic production, the private sector and government (state reserve) may purchase corn in the next marketing year. Trade sources believe that China has already contracted approximately 1 million tons of U.S. corn for September 2013 delivery.
For MY 2012/13 and MY 2013/14, China’s corn exports are reduced to 50,000 tons. The majority of China’s corn exports are destined for North Korea as food aid, which has declined in recent years.
Official stock data is not available.
According to the State Administration of Grains (SAG), on an annual basis grain (corn, wheat and rice) loss and waste during storage, transportation, and processing is estimated at 35 million tons. Due to outdated storage facilities and a lack of technical expertise, the SAG believes that the post-harvest loss rate at the household level is eight percent, or 20 million tons. For grain transportation, the annual grain loss or damaged grains is estimated at 7.5 million tons. A senior Chinese official noted that the SAG may further amend the draft Grain Law to encourage grain saving and waste reduction (please see GAIN CH12023 for information on the draft Grain Law, which is still under discussion by Chinese authorities).
For MY 2013/14, total (rough) rice production is forecast at 206 million tons on average yields. Acreage is forecast to rise slightly, as continued government price support is expected to positively influence planting decisions. In MY 2012/13, total (rough) rice production is estimated at 204 million tons, up two percent from last year, while acreage increased slightly to 30.3 million Ha. Early-season Indica rice production is up two percent to 33.3 million tons.
For MY 2013/14 consumption is projected to rise 2 percent to 147 million tons due to modest industrial consumption and population growth. Although Indica rice traditionally is consumed in the south and Japonica in the north, reportedly on a national level, Japonica has gradually become more popular due to its higher quality. Some sources estimate that 60 percent of China’s population eats rice on a daily basis.
In MY 2012/13 and MY 2013/14, rice imports are estimated at 2.4 million tons and 2.5 million tons. Most imports are from Vietnam, Pakistan and Thailand, and include higher quality rice for blending or high-end markets such as hotels, or lower quality rice for rice noodles (e.g. ramen) or snack foods. In the last two years, lower quality rice from Vietnam and Pakistan dominated the import market due to its relatively lower price over domestic varieties. According to trade sources, because of the high government floor price, imported rice was sold at a discount of USD $50 to $250 per ton. Reportedly, poor quality Indica rice imports (high rate of broken rice) are also used for brewing beer and vinegar production.
For MY 2012/13 and MY 2013/14, rice exports are estimated at 300,000 tons and 200,000 tons. Two state trading companies are licensed to export rice, which are primarily shipped to South Korea and Japan.
Official national reserve data is not available.
MY 2013/14 production is forecast to decline seven percent to 1.4 million tons on higher corn acreage in Jiangsu province and Inner Mongolia. Despite high brewery demand for barley, farmers reportedly prefer to grow other crops with higher profit potential. In MY 2012/13 barley production is estimated at 1.5 million tons, down 10 percent due to less acreage. China does not consider barley to be an important feed grain, and the crop receives no financial or other assistance.
Barley is mainly used for brewing beer. For CY 2012, beer production is estimated at 49.5 million kiloliters, up 3 percent on growing consumer demand. Consumption (for beer production) is almost two times higher than domestic barley production. According to industry sources, domestic barley protein content is higher than imported barley, and is considered a lower quality product for malting. Due to changes in taste preference, more light beer products are favored by consumers in recent years leading to a reduced use of malting barley per unit of beer production. Thus, Post lowers the overall barley use for food, seed and industrial purposes (brewery mainly) to 3.7 million tons in MY12/13 from the previous estimate of 4.7 million tons.
For MY 2013/14, imports are forecast at 2.2 million tons on continued brewery sector expansion to meet growing Chinese demand. For MY 2012/13, imports are estimated at 2.0 million tons, 20 percent down from the previous year due to high prices. Australia is the biggest supplier, followed by Canada and Argentina. According to industry sources, Ukraine is currently applying for market access.
In MY 2013/14 planted area is forecast to decline four percent to 1.9 million tons on higher corn acreage. For MY 2012/13, despite a six percent drop in acreage, production is estimated at 2 million tons, unchanged from the previous year on higher yields due to favorable weather in northeast China.
Sorghum is mainly used to produce hard liquor. For CY 2013, some industry sources estimate, likely correctly, hard liquor production growth to slow on tighter government spending on social events, such as banquets, and less public expenditure due to the recent plasticizer food safety scandal.
Due to competitive pricing, in previous marketing years some feed mills and liquor breweries have imported Australian sorghum. However, trade sources believe Australian imports cannot be sustained due to limited exportable supply.
Rural Agricultural Development Policy and Self Sufficiency
In January 2013, the government issued the No. 1 Document, which provides guidance on agricultural and rural development. According to the document, grain security continues to be a government priority, which means the Chinese government wants to be self-sufficient in grain (with an emphasis on corn, rice, and wheat) production. To accomplish this goal, the government stated plans to increase the minimum purchase price for wheat and rice in 2013, and stockpile corn, soybeans, rapeseeds, cotton, and sugar. Regarding imports, the Document states that the government could adjust import and export duties to boost agricultural supplies. But the document does not clarify if this potential flexibility in quota management would benefit the private sector or continue to be largely state controlled, which in the latter case may not result in a more open trading system. In order to improve domestic production, the Document also encourages the establishment of larger farms through land transfer, and more investment in the agricultural sector, such as the creation of model farms.
Nevertheless, even with improved rural agricultural development policies, limited arable land, water, and other resources will limit future Chinese grain production. With a rising population that is demanding more meat proteins and other higher quality food products, it will be extremely difficult for China to pursue a 95 percent self-sufficiency policy for grains.
Since 2004, China implemented a series of policies to promote agricultural production (mainly for grains and oilseeds). The policies include direct payments to grain farmers, subsidies for the purchase of farm machinery, and price support programs. For MY 2013/14, the government of China will continue to expand the support programs for grains and other key crops.
Price Support Programs
Grain Procurement Prices Rise; Management Unwieldy
In order to encourage farmers to plant rice, wheat, and corn, the Chinese government annually raises the grain procurement price, which theoretically guarantees a minimum income for farmers if local state-run depots purchase product. However, the program does have management challenges. For example, media articles mentioned that in July 2012 some local depots could not buy wheat due to a lack of cash or filled warehouses, which allegedly caused some backlash by farmers in major grain producing provinces. This situation reportedly happens every year, as state run grain depots often receive funding late to purchase grains, have limited storage, and are instructed when buying can begin, which may be later than when farmers want to sell.
Grain Tariff Rate Quota
After accession to the World Trade Organization (WTO), China established Tariff Rate Quotas (TRQs) for wheat, corn, rice, and several other commodities. Since 2004, the quotas have not changed.
For wheat and corn, most of the quotas are state controlled. During previous market years, the government primarily used state quotas to purchase wheat, rice and corn imports for state reserves. In MY 2013/14, depending on stock levels and market demand, the government may import additional grain if international prices are competitive