Monday, April 24, 2017

SOEs Buy 30% NE China Corn in 2016/17

Three State-owned companies purchased 30.562 million metric tons of corn from China's 2016/17 harvest, according to a Ministry of Agriculture update on the agricultural economy today. The purchases by the three companies--Sinograin, COFCO, and China Aviation--together accounted for 30.7 percent of all corn procured in northeastern China during the 2016/17 marketing season.

According to figures released at today's meeting, a total of 99.53 mmt of corn had been procured from the 2016 crop in the northeastern provinces as of April 23, 2017. That total is 48.316 mmt less than during 2015/16. The sharp decline reflects the ending of the "temporary reserve" program for 2016/17. While there was no formal price support program during 2016/17, the three state-owned companies were urged to buy corn in the northeastern provinces to ensure that farmers were able to sell their grain. Presumably, Sinograin, COFCO, and China Aviation are still holding much of the corn they purchased.

Chinese corn prices plummeted during 2016/17, even with purchases by the three companies propping up the market. The Ministry of Agriculture reported that corn prices received by farmers in the northeastern provinces were down as much as 30 percent from a year earlier. The National Bureau of Statistics reported that producer prices for corn were down 20 percent during the first quarter of 2017 compared with a year earlier.

In a separate announcement, Henan Province announced that corn will no longer be given subsidies for agricultural insurance premiums this year. This move appears to be meant to discourage corn production this year. The Province reported that its area planted in corn fell for the first time in 15 years last year, but the decrease was only 27,000 hectares on total planting of over 3.3 million hectares.

Thursday, April 20, 2017

Cash for Countryside and Migrants Boost Rural Income

China's rural residents saw faster income growth than urban residents during the first quarter of 2017, according to China's National Bureau of Statistics. Rural income growth came from migrant workers' income, injections of fixed asset investment, and soaring transfer payments to rural residents.

Average disposable income for urban people in China averaged 9986 yuan/month, while the rural average remained far behind, at 3880 yuan/month. But the statisticians found that the urban-rural gap between incomes is closing, which keeps China on track toward its goal of a relatively well-off society by 2020. Urban disposable income rose 6.3 percent, but rural disposable income rose 7.2 percent. The average urban income is now 2.57 times the average rural income--that's .02 less than a year ago!

China's agricultural GDP grew only 3 percent year-on-year, less than half the reported overall GDP growth of 6.9 percent in Q1 2017. Only a few crops like sugar cane and winter vegetables are harvested in the first quarter. Sugar production was up 6 percent, according to estimates by the Ministry of Agriculture. Meat production was stagnant at 0.5 percent from a year earlier. The swine inventory was up 0.1 percent from a year ago, essentially unchanged.

According to the National Bureau of Statistics, corn prices received by Chinese farmers during Q1 2017 were down 19.9 percent from a year earlier, while wheat prices were up 3.7 percent and rice prices were up 0.5 percent from a year earlier. Vegetable prices were down 11.6 percent, but fruit prices were up 9.4 percent from a year earlier. All livestock and poultry prices received by farmers fell from a year earlier. Poultry prices were down 7 percent and egg prices were down 17.5 percent from a year earlier.

The number of rural migrant workers totaled 172.53 million during Q1 2017, 2.7 percent more than the same time last year and a record high, according to the Bureau. The monthly income of rural migrants averaged 3483 yuan, up 6.4 percent from a year earlier. The combination of more rural people working off farm and higher wages pulled up the rural income average.

While agriculture had GDP growth of just 3 percent, its fixed asset investment was up 24.6 percent from a year ago, more than double the year-on-year growth in total fixed asset investment which grew 9.2 percent from a year earlier. These totals do not include fixed asset investment by rural households, but their investment is primarily in building and refurbishing their houses.

China is back to its old growth model of building things. Infrastructure investment was up 23.5% from a year ago, public infrastructure was up 27.4 percent, transportation was up 20.2 percent, and water management investment was up 18.3 percent from a year earlier.

Rural transfer payments are booming. The average rural income from transfer payments was 746 yuan per person, up 11.7 percent from a year ago. The National Bureau of Statistics attributes this rise a 52-percent increase in rural residents' revenue from government purchases of goods and services, a 22.5 percent increase in agricultural subsidies, and a 34.5 percent increase in aid to individuals.

Sunday, April 16, 2017

False Grain Statistical Reporting to be Addressed

An initiative to crack down on false statistics was announced in an April 10, 2017 circular posted on China's State Administration of Grain web site.

While progress had been made in reforming the statistical system for the grain marketing system, the circular said, "there are still some problems that cannot be ignored." The circular acknowledged that grain administrative departments in some localities do not give statistical work a high priority, some grain enterprises file untrue statistical reports, and it is urgent to raise the quality of statistical work.

The grain administration system will make renewed efforts to improve the truthfulness of grain data through several measures, although no details of the measures have been revealed. These include a grain statistics responsibility system and a statistical control system to check the numbers and hold officials responsible for quality of statistics. There will be "strict accountability" for local officials who falsify participants in statistical surveys or report fake numbers. Officials are instructed to find the reason for abnormal data and avoid passing up "sick data" from one level to the next which can lead to wrong policy decisions. Training and organizational changes will also address the false data problems.

Note: this reform applies to statistics on procurement, sales, and reserves of grain which are reported by local warehouses, granaries, and processors on forms filed and passed up through the grain administration. In particular, the massive procurement of corn reported in 2015/16 exceeded the amount of corn produced in at least one province--but the circular did not mention this or any other examples of false statistics. This particular initiative does not cover statistics on grain production, which are collected and published by the Statistics Bureau, a completely different administrative organization with little or no interaction with the Grain Administration. All statistical agencies are under orders to improve the "truthfulness of statistics" based on dictates issued by the State Council.

Saturday, April 15, 2017

China Corn Subsidies Distributed to Farmers

Corn producer subsidy payments are being distributed to farmers in northeastern China. An informational bulletin assures farmers that they can expect payments soon as local authorities complete the procedures and disburse payments that vary from 130 to 200 yuan per mu.
Farmers check subsidy distribution list 

The corn producer subsidy is being issued in two batches. The first disbursement of 30 billion yuan ($4.35 billion) has already been distributed and the second batch of 9 billion yuan ($1.3 billion) is in process. Jilin, Liaoning, and Inner Mongolia have disbursed the second batch of funds to local governments, but Heilongjiang is still processing and verifying information. The first batch of subsidies was estimated to be 135 yuan per mu, on average, and the second batch 40 yuan per mu. Local authorities deducted 10 percent from their corn subsidy fund allocation (10% of 30 billion yuan) to use for a crop planting structural adjustment program. The amount of the subsidy per mu of corn planted is calculated by each local government, so it varies from place to place.

According to the bulletin, Inner Mongolia's Chifeng Municipality has distributed 202 yuan/mu (equal to about $178 per acre) for the two subsidies combined to its 520,000 corn producers. Jilin Province is verifying the subsidy fund allocation to cities based on a formula that gives equal weight to area and output of corn. Farmers in Yushu Municipality are expected to receive 160 yuan/mu ($141 per acre). The highest subsidy in Jilin Province is 209 yuan/mu in Gongzhuling Municipality, and the highest in Liaoning is 200 yuan/mu in Huludao Municipality's Nanpiao District.

Rural households, family farms, farmer cooperatives, and "outside entities" renting land to grow corn on legally approved land are entitled to a corn producer subsidy. There are several instances where the subsidy will not be paid:
  1. Corn planted on land that is not designated as "cultivated land", i.e. corn planted on land designated for forest, as grassland or wetland.
  2. Corn planted on land placed in a "grain for green" land retirement program to convert farmland to forests or grassland.
  3. Corn planted on cultivated land that has been requisitioned by the government with compensation paid to farmers (farmers have resumed planting crops without permission on some requisitioned land that is unused because the development project has not started.)
  4. Corn planted on rented land for which there is no signed rental agreement specifying which party is entitled to subsidy payments.
A second bulletin explains the subsidy process. Farmers had to apply to their village committee to receive the subsidy. The village committee compiled information from their village members and passed it up to the township agricultural officials who compile it again and publicly post subsidy applicants and their reported area for at least 7 days. If no one raises objections, the information is compiled and verified again and delivered to the county financial bureau.

The central government disburses a set amount of funds in two batches to each of the four provinces where the program operates (see table below). The provinces then allocate funds to municipalities and counties based on the data submitted by farmers. Each locality calculates the subsidy per mu of land and disburses it to special electronic bank accounts for each farmer accessible with a bank card.

2016/17 corn producer subsidy funds disbursed to Chinese provinces (million yuan)
First batch
Second batch
Inner Mongolia
see: and

Imports of Corn and Substitutes Continue

While China's Ministry of Agriculture has proclaimed that domestic corn prices have fallen enough to choke off imports, commercial reports say imported corn substitutes still have a clear price advantage over Chinese corn. Low prices of imported corn and substitute grains could undermine plans of Chinese authorities to release domestic corn reserves into the market in coming months.

According to a report this week, imported substitutes for Chinese corn retain a clear price advantage. Corn markets in northern and northeastern China are generally tight, maintaining firm prices for domestic corn shipped to southern corn deficit regions. At Guangdong Ports, the cost of corn arriving from ports in Liaoning Province on April 12 was 1730-1750 yuan/mt, up 30 yuan from the week before. However, the cost of imported U.S. sorghum was reported to be 1640-1650 yuan/mt, and imported Australian barley cost 1540-1550 yuan/mt. The report said feed mills are gradually increasing their use of imported corn substitutes.

The report said 28 vessels of Ukrainian and U.S. corn totaling 1.54 million metric tons (mmt) are due to arrive at southern China ports during May-August, 2017--the same time Chinese authorities will be holding auctions of domestic corn reserves. Another 8 vessels of sorghum and 8 vessels of barley are also reportedly on the way. As of April 12, commercial inventories of feed grains at Guangdong ports were already adequate, at an estimated 1.3 mmt.

One report describes "psychological warfare" between participants in China's domestic corn market as they negotiate prices with rumors swirling about upcoming auctions of government corn reserves. At present, corn supplies are tight in China's corn-producing regions and prices are firm as farmers have sold most of this year's new crop of corn. The price for corn arriving at ports in northeast China's Liaoning Province ports is 1600-1610 yuan/mt and the reported price for shipment in bulk is 1650-1660 yuan/mt.

But next month the government will begin auctioning old corn from its reserves, and rumors of large volumes and low prices for the corn auctions are circulating. Some rumors say opening prices could be as low as 1250-1350 yuan/mt. Market participants, therefore, worry about being caught with high-cost inventories if the auctions put downward pressure on prices next month. Some warehouses at the northeastern ports have reportedly stopped buying new corn, forcing traders to cut prices slightly by about 10 yuan/mt despite tight supplies of new-crop corn.

Downstream demand for corn is reportedly soft at present. Hog inventories are reportedly at a low level and there has been a large drop in demand for poultry feed. Starch processors are profitable in Jilin Province where the provincial government is giving a 200 yuan/mt subsidy and corn prices are relatively low, but processors in Shandong Province are losing money paying 1700-1780 yuan/mt for corn.

Authorities appear poised to manage the corn auctions to prevent downward pressure on market prices. Hunan Province's branch of Sinograin, China's Grain Reserve Corporation, held auctions of 32,150 metric tons of corn produced in 2015 over the last two weeks to test the waters, but the minimum price was set at 1800 yuan/mt, above prevailing prices. The auctions sold 44 percent of the corn offered.

The availability of lower-priced imported corn and substitutes will constrain the release of old corn from reserves over the next 4-5 months. With cash prices for domestic corn higher than the cost of imported sorghum and barley at southern ports, sales of old corn from reserves may be slow unless authorities allow auction prices substantially lower than current cash prices. If authorities want to keep market prices firm they may be forced to continue holding old corn in reserves.

Thursday, April 13, 2017

Regional Delineations to Protect Chinese Crops

China's latest food security scheme is to designate 67 million hectares of cultivated land as "functional regions" devoted to 3 cereal grains and "protected regions" for 5 other key crops. These regions will be targeted for strict controls of land use, investments in infrastructure, subsidy programs, nurture of new types of farm operations, close monitoring by remote sensing, detailed mapping and databases.

The program was announced in an April 10, 2017 State Council document, "Guidance on Establishing Functional Regions for Grains and Protected Areas for Major Crops." According to the document, this regional delineation approach is part of President Xi Jinping's new concept and strategy for national governance. The document explained that areas best suited to each crop will be "scientifically delineated" to maintain "basic self-sufficiency" in cereal grains and maintain effective supply of other major crops.

The total area covered by these regions is planned for 1.04 billion mu (69.3 million hectares), which encompasses 51.2% of China's current cropland base, and 67% of "permanent farmland." Grain functional areas for rice, wheat, and corn are planned to cover 60 million hectares, and protected areas for soybeans, cotton, rapeseed, sugar, and natural rubber will cover 15.9 million hectares (note: the two types of areas sum to more than the total because some land will be included in more than one category). The targeted size of each crop's functional or protected area encompasses most of the area planted in each crop during 2016 (see table).

China's plans for functional and protected crop regions
Targeted region area
National area planted, 2016
Million hectares
Two regions combined
Grain functional regions
Major crop protected regions
--Natural Rubber

In a Q&A with journalists, Minister of Agriculture Han Changfu explained that this idea originated with Zhejiang Province which designated 8 million mu as a functional grain production area in 2010. Directives to establish national functional areas for grain and protected areas for other crops have been included in the State Council's "Central Document Number 1" each of the last three years, and the idea was included in the 13th five-year plan.

It will take 3 years to delineate the plots of land to be included in the functional and protected regions by giving instructions to provinces and to successively lower levels of government to choose suitable fields. The plan will take 5 years to get up and running. Relatively good, flat land will be chosen for the key regions, while land on steep slopes, wetlands, other land eligible for land retirement programs, and land with slope of 15 degrees or more will be excluded. In plains, contiguous fields of 500 mu (33 ha) will be chosen to facilitate mono-cropping, investment in irrigation networks, roads, mechanization and infrastructure. Smaller contiguous fields of 50 mu (3.3 ha) will be chosen in hilly regions.

Land use plans will be strictly enforced within the regions to ensure that a minimum production capacity is maintained. Investment in fixed assets will be focused on the regions, and reforms of agricultural lending and credit will also be targeted to these regions. Maps and complete records of each plot of land will be stored in a database, and management will be precise and automated. Fields will be monitored with remote sensing. Subsidies and transfer payments will be concentrated in the regions and the "precision" of subsidies will be increased to better motivate local officials and farmers. Pilot programs on price and income insurance will be explored in these regions and officials hope to achieve full agricultural insurance coverage.

While official propaganda describes this as a "new idea", agricultural officials have been issuing similar "advantaged regional layout plans" for specific commodities for decades. This time there will be more technology, more money, and strict enforcement of rules on land use.

Ministry of Ag S&D Estimates (Apr 2017)

Only modest changes were made in commodity supply and demand estimates released in the April 2017 China Agricultural Supply and Demand Estimates (CASDE) released by the Ministry of Agriculture.

Feed use of corn for 2016/17 was revised downward by 500,000 mt due to low inventories of swine and continued high imports of corn substitutes--sorghum and barley. However, 2016/17 soybean consumption was raised by 940,000 mt due to an increase in consumption of soybean meal for feed.

Corn imports for 2016/17 were revised upward to 1 mmt, which CASDE authors attribute to high operation rates by industrial processors in the northeast (the logic is not clear here, especially since the CASDE made no change in consumption of corn for industrial processing) and an increase in imports of cheap corn from Ukraine. (Note: the CASDE balance sheet has included the wrong 2015/16 corn import number since February.)

China corn supply and demand
(Ministry of Ag, April 2017)
Item Unit 2015/16 2016/17 Mar 2016/17 Apr
Planted area 1000 ha 38,117 36,026 36,026
Harvested area 1000 ha 38,117 36,021 36,021
Yield Kg/ha 5,892 5,978 5,978
Production MMT 224.58 215.33 215.33
Imports MMT 5.52 0.8 1
Consumption MMT 194.09 211.22 210.72
--Food MMT 7.65 7.82 7.82
--Feed MMT 121.01 133.53 133.03
--Industrial use MMT 54.17 58.25 58.25
--Seed MMT 1.7 1.61 1.61
--Loss and other MMT 9.56 10.01 10.01
Exports MMT 0.01 0.5 0.5
Surplus MMT 35.99 4.41 5.11
*2015/16 import volume shown in CASDE should be 3.2 mmt; surplus is also overstated.

Soybean imports for 2016/17 were revised upward to 86.55 mmt, 1.24 mmt more than estimated last month. CASDE expects soybean import demand to be stimulated by low world prices attributed to a record harvest of South American soybeans. CASDE explains that the expected increase in soybean meal consumption is due to its price advantage over other feeds.

China soybean supply and demand
(Ministry of Ag, April 2017)
Item Unit  2015/16  2016/17 Mar 2016/17 Apr
Planted area 1000 ha 6,590 7,156 7,156
Harvested area 1000 ha 6,590 7,150 7,150
Yield Kg/ha 1,762 1758 1758
Production MMT 11.61 12.57 12.57
Imports MMT 82.89 85.31 86.55
Consumption MMT 96.67 99.87 100.81
--Crushing MMT 82.89 85.50 86.12
--Food MMT 10.35 11.18 11.18
--Seed MMT 0.54 0.61 0.61
Loss and other MMT 2.89 2.58 2.9
Exports MMT 0.11 0.2 0.2
Surplus MMT -1.96 -2.19 -1.89

CASDE revised its estimate of 2016/17 edible oil production upward by 220,000 mt to 26.11 mmt. This reflects mainly a 200,000-mt increase in soybean oil production, which in turn reflects larger imports of soybeans. Rapeseed oil production has been revised downward by 10,000 mt due to poor growing conditions in some regions.

China edible oils supply and demand (Min Agriculture, April 2017)
Item Unit 2015/16 2016/17 Mar 2016/17 Apr
Production MMT 25.3 25.89 26.11
--Soy oil MMT 14.74 15.17 15.37
--Rapeseed oil MMT 5.6 5.61 5.6
--Peanut oil MMT 3.01 3.18 3.18
Imports MMT 5.81 5.6 5.6
--Palm oil MMT 3.39 3.25 3.25
--Rapeseed oil MMT 0.77 0.75 0.75
--Soy oil MMT 0.59 0.58 0.58
Consumption MMT 31.17 31.43 31.43
--Urban MMT 20.95 21.4 21.4
--Rural MMT 10.22 10.03 10.03
Exports MMT 0.12 0.13 0.13
Surplus MMT -0.18 -0.07 0.15

No changes were made in the cotton S&D.
China cotton supply and demand (Ministry of Ag, April 2017)
Item Unit 2015/16 2016/17 Mar 2016/17 Apr
Begin inventory MMT 12.8 11.11 11.11
Planted area 1000 ha 3,267 3,100 3,100
Yield Kg/ha 1,510 1,523 1,523
Production MMT 4.93 4.72 4.72
Imports MMT 0.96 0.90 0.90
Consumption MMT 7.56 7.59 7.59
Exports MMT 0.02 0.01 0.01
End Inventory MMT 11.11 9.13 9.13

CASDE revised its estimate of 2016/17 sugar output downward by 450,000 metric tons to 9.25 mmt. Agricultural officials on the ground have observed that area planted in sugar is less than previously estimated.
China sugar supply and demand (Ministry of Ag, April 2017)
Item Unit 2015/16 2016/17 Mar 2016/17 Apr
Planted area 1000 ha 1423 1433 1349
--sugar cane 1000 ha 1295 1270 1181
--sugar beets 1000 ha 128 163 168
--sugar cane MT/ha 60.3 60 60
--sugar beets MT/ha 53.85 52.5 52.5
Sugar output MMT 8.7 9.7 9.25
--sugar cane MMT 7.85 8.65 8.22
--sugar beets MMT 0.85 1.05 1.03
Imports MMT 3.73 3.5 3.5
Consumption MMT 15.2 15 15
Exports MMT 0.15 0.07 0.07
Surplus MMT -2.92 -1.87 -2.32