China. Grain and Feed Annual. Apr 2014 April 11, 2014
China’s wheat, rice, and corn production are forecast to maintain record or near-record levels, supported by high government-set purchase prices. Corn import estimates for marketing year 2013/14 are cut to 4 million tons due to large domestic stocks and biotech-related trade disruptions. Imports of alternative feed ingredients, such as U.S. sorghum and dried distiller grains, have reached record levels.
Wheat production in marketing year (MY) 2014/15 is forecast stable at 122 million metric tons (MMT). MY 2014/15 wheat imports are forecast at 4 MMT, down 3 MMT from the previous year, as near record production and lower feed use reduce import demand.
MY 2014/15 corn production is forecast at a record 218 MMT based on an expansion in corn acreage at the expense of less profitable soybeans and cotton. Corn imports in MY 2014/15 are forecast to fall to 3 MMT due to high domestic corn stocks and the potential for continued biotech-related trade disruptions.
MY 2014/15 rough rice production is forecast to edge slightly higher to 204 MMT on average yields and a small increase in acreage. Rice imports in MY 2014/15 are forecast to increase 500,000 tons to 4 MMT as high government support prices keep domestic rice prices above world prices.
Imports of alternative feed ingredients are expected to continue to grow as these products are not restricted by tariff rate quotas (TRQs) and are less likely to be subject to policy interventions. Estimated MY 2013/14 sorghum imports are increased 500,000 tons to 3.5 MMT on strong feed demand. Distillers dried grains (DDGS) and cassava imports also broke new records, reaching 4 MMT and 7.2 MMT respectively in calendar year (CY) 2013. Almost all of China’s imports of DDGS and sorghum for feed come from the United States.
MY 2014/15 wheat planted area and production are forecast stable at 24 million hectares and 122 MMT, respectively. A Ministry of Agriculture (MOA) survey in March 2014 showed above average wheat crop conditions in major producing provinces. Prospects for wheat production remain positive given the government’s policy of providing financial support to this key crop, including minimum purchase price and seed and machinery subsidies. In contrast, alternative crops such as winter rapeseed and cotton face lower or declining government support, making them less attractive to farmers.
The government pays a set price for average quality wheat, irrespective of protein level, under its price support program. As a result, wheat offered to flour mills from state reserves has inconsistent quality characteristics. While overall flour consumption is stable, demand for specialty flours for high-value bakery products is rising. Flour mills prefer to import wheat for specialty flours, as sourcing domestic wheat with the necessary consistent qualities is difficult. However, wheat imports are limited by TRQs, of which only 10 percent are allocated to the private sector.
MY 2014/15 wheat feed consumption is forecast at 20 MMT, down 3 MMT from this year. Industry sources report the use of wheat in feed has been limited over the past year due to comparatively low corn prices. Large corn stocks are expected to keep corn prices below wheat prices, limiting wheat feed use in the near future.
MY 2014/15 wheat imports are forecast at 4 MMT, down 3 MMT from the previous year due to near record production and lower feed use. Estimated MY 2013/14 wheat imports are revised down 1.5 MMT to 7 MMT on lower feed use. While some imported wheat was used to replenish state reserves in MY13/14, sources believe that is unlikely to happen in MY 2014/15. Domestic wheat production and stocks are ample for food use, and the government is likely to prioritize corn over wheat as a feed ingredient given high corn stocks. Trade contacts report that strict inspection and quarantine measures for Tilletia controversa (TCK ) continue to discourage imports of US winter wheat varieties from affected areas despite competitive U.S. wheat prices.
MY 2014/15 wheat exports are forecast at 1 MMT, unchanged from the previous year. Traditional export destinations include North Korea, South Korea, and Hong Kong.
Since 2004, domestic wheat production has been purchased and stored by state grain companies under the government’s minimum purchase price program. The government provides state grain companies preferential loans to purchase the wheat and subsidizes storage costs. The State Administration of Grain (SAG) organizes regular wheat auctions throughout the marketing year as necessary to meet demand or rotate stocks. Feed mills, although disqualified at times of tight supplies in the past, are reportedly eligible to participate in wheat auctions in MY 2013/14.
MY2014/15 wheat stocks are forecast at 62 MMT, 4 MMT higher than the previous year on continued record production and large government purchases. There are no public official statistics on wheat stocks.
MY 2014/15 corn production and acreage are forecast at 218 MMT and 36.2 million hectares respectively, sustaining current record levels. As a key feed crop, the government encourages production through financial incentives which enhance corn’s profitability. A survey by the Heilongjiang Provincial Bureau of Statistics found that corn was more profitable than soybeans, edible beans or sunflowers in MY 2013/14. As a result, corn is continuing to erode less profitable soybean acreage in northeast China and cotton acreage in parts of the Northern Plain. The government has announced it will continue its temporary reserve program for corn, which has boosted domestic prices above international levels.
The growth in feed corn use for livestock and poultry production is estimated to have slowed in MY 2013/14 as food safety scandals and avian influenza outbreaks suppressed demand for pork and chicken. In response, meat production (including pork, beef, mutton, and poultry) rose only 1.8 percent during calendar year (CY) 2013, compared to 5.4 percent in the previous year. Nevertheless, meat demand is expected to recover and resume its upward trend along with growing incomes in coming years.
CY 2013 industrial feed production is estimated at 191 MMT, a decrease of 1.8 percent over last year due to lower compound and concentrate feed production. Swine and poultry farmers have responded to tight profit margins by increasing use of lower cost feed premixes instead of compound or concentrate feeds. Larger farms normally use compound feed, while smaller household operations typically utilize concentrate.
Total food, seed and industrial (FSI) corn use is forecast at 56 MMT for MY 2014/15. MY 2013/14 FSI corn use is estimated at 55 MMT, 5 MMT lower than the previous estimate due to weak starch and ethanol production. Industry sources estimate that ethanol and starch manufacturers only ran at 40-45 percent capacity in MY 2013/14 and 2012/13, down from 50 percent in prior years. Weak demand is attributed to a slowdown in the overall economy and lower consumption of hard liquor, the latter due to a government-wide austerity movement that includes severe restrictions on official banquets.
Corn imports for MY 2014/15 are forecast to fall to 3 MMT as demand is reduced due to high domestic corn stocks, incentives to purchase domestically, and uncertainty in import treatment of genetically modified corn. The government is encouraging end users to purchase domestic corn over cheaper imports. For MY 2013/14, the government is offering end users in southern coastal provinces a 140 RMB per ton subsidy to purchase corn (or rice) from the northeast. This program is scheduled to end in June 2014.
MY 2013/14 corn imports are reduced to 4MMT, down 1 MMT from the last estimate, due to biotech-related trade disruptions. Since November 2013, China has rejected over 900,000 tons of U.S. corn and over 90,000 tons of U.S. DDGS imports due to detections of biotech corn variety MIR 162. The latest rejection of corn occurred in March 2014 in Tianjin according to state media. Although China has not yet granted import approval for MIR162, this trait is used in major corn producing countries such as the United States, Argentina, and Brazil, and is approved in most export markets.
While the United States remains China’s largest corn supplier, recent trade disruptions are prompting end users to seek alternative suppliers, such as Ukraine. Traders are also looking at importing corn from Brazil and Argentina, although MIR 162 is also prevalent in these countries. Policy makers have said they want to diversify China’s grain suppliers, but have not specified how they will achieve this.
Countries Allowed to Export Grains to China:
Wheat: Australia, Canada, France, Kazakhstan, Hungary, United Kingdom, United States, Serbia and Mongolia
Corn:Thailand, United States, Peru, Laos, Argentina, Ukraine, Bulgaria and Brazil
Barley: Australia, Canada, Denmark, France and Argentina, Mongolia and Ukraine
On November 22, 2013, the government announced a temporary reserve program for corn in Heilongjiang, Jilin, Liaoning, and Inner Mongolia. Under the program, SingoGrain purchases corn from farmers at preset floor prices, averaging RMB 2,240 / ton. MY 2013/14 temporary reserve purchases in northeast China have already reached 61 MMT according to the National Grain & Oil Information Center, far exceeding the 30 MMT purchased in MY 2012/13. The temporary reserve program is set to expire on April 30, 2014.
Corn in the northeast was damaged by hot and wet weather following the 2013 harvest. Industry sources report higher than normal levels of mold damage and aflatoxin in corn purchased by the government in MY 2013/14. The provincial governments in Inner Mongolia, Jilin and Heilongjiang issued a notice in March 2014 instructing Sinograin to purchase corn with a mold content of less than 5 percent. Corn with mold content between 5 and 20 percent will undergo further testing before being sold to feed mills, while corn with mold content exceeding 20 percent will be used for ethanol production. Provincial governments are looking at investing in equipment to separate out moldy kernels and are reportedly considering subsidizing the sale of moldy corn.
MY14/15 corn ending stocks are forecast at 87 MMT, 7 MMT higher than the previous year, due to record corn production. Storage facilities in major corn producing provinces such as Heilongjiang are reportedly at maximum capacity. The government is renting storage facilities from corn processors to help hold temporary corn reserves.
MY 2014/15 rough rice production is forecast at 204 MMT on average yields and a slight rise in planted area. Government price support encourages farmers to plant rice as a component of food security. Estimated MY 2013/14 rough rice production is unchanged at 203 MMT.
MY 2014/15 consumption is projected to rise one percent to 148 MMT due to population growth and an increase in industrial consumption. Estimated MY 2013/14 consumption is unchanged at 146 MMT.
Rice imports in MY 2014/15 are forecast at 4 MMT as domestic prices are expected to continue to exceed prices in neighboring countries. MY 2013/14 imports are estimated at 3.5 MMT based on export statistics. Imported rice is blended with domestic rice varieties at rice mills or used in food processing.
High government support prices keep domestic rice prices stable and above those of neighboring Thailand, Vietnam and Pakistan. The government has tightened TRQ controls in an attempt to protect domestic farmers from cheaper imports, including preventing the TRQ for japonica rice to be used to import less expensive indica rice.
The government provided floor prices for japonica and indica rice in major producing provinces in MY 2013/14 to encourage rice production. Rice purchased under the floor price will be auctioned later in the market year. Industry contacts report that japonica rice purchases under the program totaled 10 MMT in MY 2013/14, or 20 percent of total output. The government is offering end users in southern coastal provinces a 140 RMB per ton subsidy to purchase rice (and corn) from the northeast.
MY 2014/15 rice ending stocks are forecast at 45 MMT. Storage capacity in major rice producing provinces, such as Heilongjiang (for japonica) and Hunan (for indica), are reportedly near capacity with government purchases under the price support program.
MY 2014/15 barley production is forecast at 1.4 MMT on lower acreage as farmers in Jiangsu and Gansu switch to planting more profitable corn and winter wheat. MY 2013/14 barley production is estimated at 1.5 MMT based on National Bureau of Statistics data. Barley production is not subsidized by the government as it is not considered an important grain for food security.
Barley is mainly used for beer production which reached 50.6 million liters in CY 2013, 4.6 percent higher than 2012. Growth in beer consumption has accelerated as hard liquor consumption has slowed. Recent government anti-corruption and public stewardship measures have reduced entertainment expenditures and hard liquor consumption.
MY 2014/15 imports are forecast at 2.5 MMT on continued growth in beer production. MY 2013/14 imports are estimated at 2.4 MMT, 10 percent higher than the previous year, due to lower domestic barley production. Australia is China’s largest supplier, followed by Canada and Argentina. End users are also looking to import from Ukraine, which gained market access in late 2013. Some feed mills report they will consider purchasing barley for feed use if it is price competitive.
MY 2014/15 sorghum production is forecast at 2.8 MMT, up 4 percent on increased acreage as higher prices in recent years have increased farmer interest in sorghum. MY 2013/14 sorghum prices nearly doubled in some northern provinces, such as Inner Mongolia and Liaoning, due to a shortage of high quality sorghum for liquor production. MY2013/14 sorghum production is estimated at 2.7 MMT.
MY 2014/15 sorghum consumption is forecast at 6.1 MMT. Estimated MY 2013/14 consumption is raised 500,000 tons to 5.8 MMT on strong feed demand. In the past, sorghum was primarily used in China to produce hard liquor. Hard liquor production grew 7 percent in CY 2013, reaching 12.3 billion liters. However, this represents a large slowdown from CY 2012 when hard liquor production expanded by 18 percent. The slowdown is likely related to the government’s anti-corruption and public spending campaigns which have reduced hard liquor consumption.
However, feed use more than tripled in MY 2013/14 as feed mills recognized sorghum as a cost effective feed ingredient. U.S. cooperators and USDA marketing programs have helped raise awareness in China of sorghum as a feed ingredient (GAIN 13065). Feed demand for sorghum is expected to remain strong in the future.
MY 2014/15 imports are forecast at 3.5 MMT as sorghum is expected to remain price competitive compared to domestic corn. Estimated MY 2013/14 sorghum imports are increased 500,000 tons to 3.5 MMT on strong feed demand and biotech related disruptions in corn trade. The majority of imports for feed come from the United States, but Australian red sorghum is also in demand for use in liquor production and sells for a premium.
DDGS and Cassava Imports
Other readily available alternatives to corn for the feed and industrial sectors are DDGS and cassava. DDGS imports reached a record 4 MMT in CY 2013, up 68 percent from the previous year, for use in both swine and poultry feed. Cassava imports reached a record 7.24 MMT in CY 2013, up 4 percent from the previous year. Industry sources estimate that 60 percent of imported cassava is used for ethanol production and the rest is used in animal feed. DDGS and cassava imports are expected to continue to expand in the future.
Rising disposable incomes are leading to more diverse and animal protein rich diets, increasing demand for food and feed products. Large government support programs targeting grain production have led to steady reported increases in corn, wheat and rice production over the past 10 years. However, limited water resources and degraded arable land as a result of industrial pollution, overuse of fertilizers, and single cropping make production increases difficult and place a significant strain on Chinese agriculture resources.
In consideration of these challenges, President Xi Jinping announced a new food security strategy at the annual central economic conference in December 2013 that envisions an enhanced role for global markets in meeting food security goals. The government will try to maintain self-sufficiency in wheat and rice, but will allow “moderate” grain imports for feed. This is a break from previous policies that sought to maintain 95 percent self-sufficiency for corn, wheat and rice. While this policy change may allow for growth in corn imports in the long run, it will not necessary quickly result in concrete changes to regulations or trade barriers.
China provides a range of subsidies to promote grain production, including direct payments to farmers, subsidies for purchasing farm machinery, and price support programs. The government will continue to expand support programs for grains in MY 2014/15.
Price Support Programs
The government annually raises grain procurement prices to encourage farmers to plant key staple crops for grain self-sufficiency, such as rice, wheat and corn. This provides a minimum purchase price to farmers when local state-run enterprises purchase their crops on behalf of the government. Procurement prices will be increased again in MY 2014/15, although by a smaller amount than in previous years.
Grain Tariff Rate Quota
Within the grain sector, China maintains TRQs for wheat, corn and rice. While fixed quotas have not changed since 2004, the government does allocate additional grain quotas as it deems necessary during a marketing year. Quota allocations are divided between private industry and government interests. The government has used state quotas to import wheat, rice and corn for state reserves in previous marketing years.
Government floor prices and temporary reserve programs have boosted production of corn, wheat, and rice. In general, these programs keep domestic prices relatively stable and above international levels. China attaches great importance to grain self-sufficiency and so these programs are likely to continue in the coming years