Tuesday, January 17, 2017

Sinochem New Agricultural Giant

A January 10 strategic agreement between two state-owned enterprises--Sinochem and Sinograin--may signal a transition for Sinochem to become a giant agricultural company to spearhead China's domestic agricultural modernization and its outbound foreign investment in agriculture.

Sinochem, a state-owned enterprise founded in 1950, has traditionally focused on chemicals and energy, but it also produces chemical fertilizer, seeds, and pesticides. An analysis by China Business News says that the extended downturn in the petroleum industry encouraged Sinochem to consider the shift toward agribusiness. The government is concerned that it has no major state-owned enterprise directly engaged in agriculture and appears to have tagged Sinochem to spearhead its agricultural supply-side structural reform--a big priority for this year.

Sinograin, aka China National Grain Reserves Corporation, is a state-owned company created in 2000 to take over grain reserve functions from the government-run grain bureaucracy. One analyst quoted by China Business News speculates that Sinochem hopes to access the cash flow from Sinograin's grain reserve business. Subsidies for interest and costs of storing reserves make the business highly profitable, the expert says.

Sinochem is expected to conduct farming services and provide technical advisory services through its subsidiary Zhonghua Modern Agricultural Development Co., and help Sinograin with reserve storage and rotation, sales and personnel training. The companies are to work "hand in hand" to provide coordinated guidance for national food security and transformative agricultural modernization. The agreement is a cooperative partnership, not a takeover.

The current head of Sinochem, Ning Gaoning, is a veteran of state-owned enterprises, having previously worked at China Resources and COFCO. Not surprisingly, Lu Jun, the head of Sinograin worked with Ning previously at COFCO.

While at COFCO, Ning built up the company and there were similar aspirations for COFCO to become a major competitor for multinational grain companies. Those aspirations seem to have been dialed back with the recent departures of key managers. Now Sinochem seems to have been given the mantle of China's agricultural giant.

It is probably no coincidence that Sinochem is also engaged in a $43 billion takeover of Swiss seed and chemcial company Syngenta.

Ning recently denied rumors that Sinochem sought to acquire ChemChina.

Monday, January 16, 2017

CASDE January 2017

China's Ministry of Agriculture made only very minor changes in its supply and demand balance estimates for the January 2017 China Agricultural Supply and Demand Estimates (CASDE) report.

For corn, the 2016/17 harvested area and yield were adjusted upward slightly and the increase in stocks was adjusted upward accordingly. The CASDE authors say some corn blown over by storms was actually harvested and some corn performed better than expected in the late growing stage. They emphasize that 2016/17 corn production is still at a historically high level even though it is down from 2015/16. CASDE expects corn stocks to increase in 2016/17 by 5.1 mmt. For soybeans, a slight increase in seed use is incorporated to reflect an increase in soybean plantings this year.

China corn supply and demand (Ministry of Ag, Jan 2017)
Item Unit 2015/16 2016/17 Dec. 2016/17 Jan
Planted area 1000 ha 38,117 36,026 36,026
Harvested area 1000 ha 38,117 36,016 36,021
Yield Kg/ha 5,892 5,960 5,978
Production MMT 224.58 214.65 215.33
Imports MMT 3.2 1.0 1.0
Consumption MMT 194.05 210.72 210.72
--Food MMT 7.65 7.82 7.82
--Feed MMT 121.01 133.53 133.53
--Industrial use MMT 54.17 57.75 57.75
--Seed MMT 1.66 1.61 1.61
Loss and other MMT 9.56 10.01 10.01
Exports MMT 0.01 0.5 0.5
Surplus MMT 33.73 4.43 5.11

Perhaps the most interesting aspect of the report is that MOA has not adopted official National Bureau of Statistics estimates of 2015 corn production and area published in the Bureau's 2016 China Statistical Yearbook (released several months ago and now available on the web site). The MOA report still contains preliminary 2015/16 NBS corn estimates from the Statistical Abstract released in May 2016. The difference in the numbers is tiny and inconsequential, so this probably reflects MOA's lack of attention to detail rather than disagreement with the NBS numbers. More significantly, MOA has not adopted the NBS estimates of corn production, area, or yield for 2016/17 that were released in the NBS communique on grain production released last month. MOA has a larger decrease in corn area and corn production than NBS's number, which may reflect MOA's confidence in the Ministry's structural adjustment program to reduce corn in 2016. MOA's 2016/17 corn yield is 5 kg higher than NBS's. MOA estimates 2016/17 corn output at 215 mmt, but NBS estimated 219.55 mmt.

MOA's estimate of domestic corn prices was kept steady at 1500-1650 yuan/mt. However, the latest reports on the MOA web site say the average price at ports in northeast China has fallen to 1470-1480 yuan. Prices in Heilongjiang have fallen below 1400 yuan. The price at southern ports is in the range of 1560 to 1620 yuan /mt ($226-$235).

MOA estimates corn imports at 1 mmt for both 2015/16 and 216/17. Corn imports have slowed to a trickle since June 2017. Nearly all corn imports since June have been small border trade shipments from Laos and Myanmar. There have been only a few small shipments of corn from the United States and no Ukraine shipments since August.

Interestingly, CASDE's 2016/17 soybean import estimate of 85.3 mmt nearly matches its estimate of crushing use. Its estimate of domestic production (12.5 mmt) plus the drawdown of stocks (-2.2 mmt) almost matches the sum of food (11.18 mmt), seed (.61 mmt) and loss (2.48 mmt). This implies a bifurcated market in which nearly all crushing demand is met by imports and (nearly?) all food processing use is met by domestic soybeans.This may explain why such a differential between domestic soybean prices (4450-4650 yuan/mt) and imported soybean prices (3250-3450 yuan/mt) can persist--domestic soybeans get a 35-37 percent premium because they are non-GMO and for food use.

China soybean supply and demand (Ministry of Ag, Jan 2017)
Item Unit  2015/16   2016/17 Dec   2016/17 Jan 
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 1,748 1,748
Production MMT 11.6 12.5 12.5
Imports MMT 83.23 85.31 85.31
Consumption MMT 96.67 99.72 99.77
--Crushing MMT 82.89 85.50 85.50
--Food MMT 10.35 11.18 11.18
--Seed MMT 0.54 0.56 0.61
Loss and other MMT 2.89 2.48 2.48
Exports MMT 0.11 0.20 0.20
Surplus MMT -1.9 -2.1 -2.2

China cotton supply and demand (Ministry of Ag, Jan 2017)
Item Unit 2015/16 2016/17 Dec  2016/17 Jan 
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 7.54 7.54 7.54
Exports MMT 0.02 0.01 0.01
End Inventory MMT 11.13 9.18 9.18

China edible oils supply and demand (Min Agriculture, Jan 2017)
Item Unit 2015/16 2016/17 Dec  2016/17 Jan 
Production MMT 25.3 25.79 25.85
--Soy oil MMT 14.74 15.16 15.16
--Rapeseed oil MMT 5.6 5.55 5.61
--Peanut oil MMT 3.01 3.18 3.18
Imports MMT 5.81 5.55 5.65
--Palm oil MMT 3.39 3.20 3.3
--Rapeseed oil MMT 0.77 0.80 0.8
--Soy oil MMT 0.59 0.58 0.58
Consumption MMT 31.17 31.41 31.41
--Urban MMT 20.41 20.8 20.8
--Rural MMT 10.76 10.61 10.61
Exports MMT 0.11 0.13 0.13
Surplus MMT -0.17 -0.20 -0.04

China sugar supply and demand (Ministry of Ag, Jan 2017)
Item Unit 2015/16 2016/17
Planted area 1000 ha 1423 1433
--sugar cane 1000 ha 1295 1270
--sugar beets 1000 ha 128 163

--sugar cane MT/ha 60.3 60
--sugar beets MT/ha 53.85 52.5
Sugar output MMT 8.7 9.9
--sugar cane MMT 7.85 8.85
--sugar beets MMT 0.85 1.05
Imports MMT 3.73 3.5
Consumption MMT 15.2 15
Exports MMT 0.15 0.07
Surplus MMT -2.92 -1.67

Rural Land Cooperatives Keep Communist Officials Relevant

Chinese authorities have put a priority on clarifying property rights to agricultural land in order to raise farm productivity and encourage villagers to migrate to cities. Their core strategy is to supplant a chaotic rural land market by creating village cooperatives that pool village land and pay dividends to villagers. The financial viability of these arrangements depends on high grain prices and pooling of subsidies that formerly were sprinkled over small land-holding households.

At a State Council news conference earlier this month, China's Minister of Agriculture stressed the urgency of clarifying ownership of collective assets, including village farmland, collective-owned factories and other businesses, and public facilities. The Minister explained that many collective assets are under-utilized or have been improperly sold or appropriated by individuals due to vaguely defined property rights. A pilot program has been launched to clarify ownership, separate ownership rights from business rights, and set up joint stock cooperatives that issue shares to village collective members. The initial focus will be on village land and other resource-type assets.

Communist party officials have a big plan to set up village joint stock cooperatives based on pooled farmland. Villagers' contracted land rights will be converted to membership shares in the village cooperative. The physical land is turned over to a few "professional farmers," and part of their profits will be distributed to villagers in the form of dividends.
Officials distribute dividends for land-based shares to cooperative members 
in Shandong Province's Taozhuang Village (source: Ministry of Agriculture)

To make the cooperative arrangement more concrete, the Ministry of Agriculture recently explained the workings of a joint stock land cooperative in Shandong Province's Taozhuang Village. The village has 290 mu (about 48 acres) of farmland divided among 72 households--with less than an acre per household the land has been highly fragmented. The village pooled the land and "under the direction of communist party cadres" villagers voted to choose four capable and upstanding individuals to farm the village land on their behalf. (Were there farmers who wanted to farm but were rejected? What happened to them? Were they forced to become non-farming shareholders in the cooperative?)

Each household cooperative member received shares in the cooperative based on their previous land-holding. The profits from the village land cultivated by the four designated farmers are distributed to shareholders twice a year, presumably after the wheat harvest in the summer and after the fall corn harvest.

The Ministry of Agriculture article described a January 10 meeting to distribute funds from the fall corn harvest. One member was effusive about his 4600 yuan ($667) dividend payment, "I don't have to plant crops...now I can go out to work without concern."

The article emphasizes that the cooperative increases productivity and "liberates" villagers from their land. The communist party secretary says the village's grain production is now entirely mechanized and more land can now be used for production after removing ridges between fields and ploughing up paths that were used to access small plots. By giving villagers shares entitling them to dividends, they can give up cultivating their land and move to cities instead of sitting on their land to protect their rights to it--they are "liberated" from their land.

The joint stock cooperative is presented as a cost-saving alternative to free-market rentals of land rights (Chinese authorities have ruled out privatization of farmland) orchestrated by local communist party officials. Taozhuang village's communist party secretary asserts that the joint stock cooperative saves 420,000 yuan that would otherwise be spent on private land-renting arrangements (hmm, that works out to 1450 yuan per mu). The party secretary projects that village share-holders will reap dividends of 1000 yuan per mu (about $880 per acre) annually without having to do any farming. Free money!
Happy Taozhuang villager collects her dividend.

This scheme is not quite as capitalistic and market-oriented as it might at first sound. Unlike shares in a publicly-traded company, these shares presumably are not transferable so they have no cash value. Cashing-out shares to move away (or overseas) permanently is not an option. Nor can an outsider buy his/her way into the village cooperative to collect these dividends. Nor is it clear what happens to the shares when the shareholders pass away (which may not be far in the future since they appear to be elderly).

The dividends are a distribution of net returns from growing wheat and rice on the village's land. The high dividends ultimately depend on maintaining high prices for grain in China. The high prices, in turn, rely on controlling imports of grain to keep the Chinese price above international prices.

The Ministry of Agriculture provided accounting information for the Taozhuang joint stock cooperative that shows the high dividends rely on very high grain prices. The table below compares the Taozhuang cooperative's corn income with estimates for Illinois farmers from farmdoc daily. The dividend paid to villagers is equal to $358 per acre. This is essentially their share of the net return from growing corn on their farmland--analogous to a rental payment. In the United States the equivalent would be the rental payment on land which is paid to landlords. In central Illinois the rent paid for farmland this year is estimated by farmdoc daily to be about $220 per acre.

Estimated net returns to corn production, Fall 2016
Item Unit Taozhuang village
Central Illinois
Yield bu/acre 131
Price US$/bu 5.46
Gross income $/acre 715
Cost $/acre 252
"Net" income $/acre 463
"Dividend" to villagers $/acre 358 Land rent 220
"Service center" expense $/acre 105 Farmer loss (-43)
Sources: Ministry of Agriculture web site,
Schnitkey, G. "2016 Gross Revenue and Income Projections for Corn and Soybeans in Central Illinois." farmdoc daily (6):224, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, November 29, 2016

Let's work through how the Taozhuang cooperative generates enough money to distribute $358 per acre to villagers who do no farm work. The corn yield in Taozhuang village is higher than the average in China but still only 57 percent of the average yield in central Illinois. The low yield in Taozhuang is offset by a higher price than in Illinois. The corn price in Taozhuang is 1500 yuan per metric ton, or $5.46 per bushel, which is 65 percent higher than the price of $3.30/bu expected in central Illinois for the 2016/17 market year. With these yields and prices, gross income per acre is estimated at $715 in Taozhuang and $762 per acre in central Illinois.

The cost per acre reported for Taozhuang is just $252 per acre. This is less than half the production costs usually reported in China--probably because it does not include land rent, labor, and possibly mechanized services. This is probably just the cost of purchased inputs like fertilizer, seed, and hired labor. For Illinois farmers all costs except land rent total $555. are deducted from gross income.

After these deductions, $463 per acre is available for distribution to Taozhuang villagers and support for a "service center." The villagers' dividend payment is $358 per acre and $105 is paid to the "service center." It is unclear what the "service center" is--it may coordinate the cooperative and may be a conduit for providing technical advice or custom farming services. It is also unclear how the four Taozhuang farmers who do the farm work are compensated. In comparison, the Illinois farmers absorb a loss of $43 per acre after paying an estimated average rent of $220 per acre to landlords.

This accounting does not include substantial subsidies. In Shandong Province (where Taozhuang village is located) there is an annual grain subsidy payment of 125 yuan per mu based on the area planted in wheat (most grain land in Shandong is planted in winter wheat which is followed by a corn crop in the fall). The subsidy would be $110 per acre, or a total of about $5250 for the cooperative's entire land base. Based on new rules, the subsidy should be paid to the four farmers who grow the crops. There is also a subsidy of 100 yuan per mu ($88 per acre) as an "award" for consolidating and renting out farmland to other farmers for a term of at least 3 years. (Shandong is one of 11 provinces piloting this arrangement to encourage transfer of farmland, and presumably this cooperative is eligible). It is unclear whether this subsidy is paid to villagers or to the collective organization.

So far, we're up to $198 per acre in subsidies that are not included in the accounting above. The government also subsidizes 30 percent of farm machinery purchases, and there are other subsidies for village projects that Taozhuang's well-connected communist party officials have surely applied for. If grain prices fall and the dividend is reduced, the shareholders may not be so happy. They may observe that the cooperative has cut their dividend yet is still flush with subsidies. What if the shareholders discover that their dividends would be higher if the land was used to raise garlic or fish?

Communist party officials view themselves as necessary intermediaries to engineer structural transformation of the countryside. The Ministry of Agriculture's description of the Taozhuang land cooperative concludes by pointing out that the cooperative arrangement revives the relevance of village communist party officials. According to the description, "In the past it was said, 'after distributing land to households the [village] communist party branch was no longer needed." But the Ministry says that communist party officials are now of central importance in the village: "Now that land rights are issued to households, the rights can only be assured by the communist party branch."

Tuesday, January 10, 2017

Menu of Crop, Livestock, Processing Subsidies for 2017

China has a "Comprehensive Development" program for support of agricultural projects that local officials can apply for. A list of 31 types of subsidies for projects in four major categories has been posted for 2017. The projects reflect the priorities for this year highlighted by the central economic work meeting last month: developing agricultural processing industry, integrating agriculture with processing and marketing sectors, poverty alleviation through agricultural development, improving agricultural infrastructure and services, and rural tourism. Some of these projects incorporate major subsidy programs (agricultural machinery and improved variety subsidies) but they do not include the direct grain subsidies, target price, or corn producer subsidies. This program generally supports local infrastructure, construction of farms, markets, storage and processing facilities that engage hundreds of small-scale farmers in a village, township or other local area.

The list is as follows:
Type of projectSubsidy (yuan)
Agricultural Tourism projects
Modern agriculture park pilots 10-20 million provincial, central 100-200 million
County specialty product industry development 3-5 million
Leading enterprise development 5-8 million
Integration of primary, secondary and tertiary industry pilot 30% of investment
Small-medium enterprise technology innovation fund for modern agriculture 800,000
Poverty alleviation through strengthening agricultural processing industry 5 million 
Modern livestock for farmer income growth
improved varieties that upgrade livestock and poultry 3-5 million
Biomass energy utilization demonstration projects 10% of investment
2015-17 agricultural machinery subsidy 30% of investment
Agricultural processing and distribution
Cold chain distribution and modern logistics 2-10 million
Financial support for launching agricultural processing not specified
Aid for potato, vegetable, and fruit storage and drying in agricultural production areas 30% of investment
Agricultural machinery subsidy 30% of investment
Comprehensive development for crops, livestock infrastructure; cotton, fruit, veg, tea, mushroom, flowers, silkworm, livestock and poultry processing, storage, wholesale markets 3 million yuan
Aid for investment in crops for economic development
Investment in conservation and environmental protection 10% of investment
Modern agriculture demonstration 2-200 million
Biomass energy demonstration  10% of investment
National agricultural industrialization model bases 3 million yuan
Vegetable basket projects 5000 yuan/mu, up to 3 million yuan
Propagation of improved varieties for advantaged special crop projects 1-5 million
Comprehensive development for crops, livestock infrastructure; cotton, fruit, veg, tea, mushroom, flowers, silkworm, livestock and poultry processing, storage, wholesale markets 3 million yuan
Promotion of agricultural products 10% of investment
Modern crop upgrade for seeds 8-15 million
Agricultural development forestry projects 1.2 million
Agricultural comprehensive development land governance 1100 yuan per mu
Medium-size irrigation district water conservation in grain producing regions Up to 20 million
Agricultural science and technology extension fund 600,000-3 million
Medicinal crop support 1-3 million
Vegetable nursery crops (must have no fake seedlings for 3 years) Up to 5 million
Cultivated land protection and quality improvement 800,000-1.2 million

Monday, January 2, 2017

China Sow Inventory Statistics Explained

An official explained how the Ministry of Agriculture generates its data series on monthly swine inventories--the first explanation of the widely-disseminated series since the data was first released seven years ago.

The explanation was given to a reporter from Southern Rural News who explained that the accuracy of the data is scrutinized by people in the industry who watch the monthly releases for clues about the future course of hog prices. There are differing interpretations that stem from differing understandings of how the data series is constructed. Analysts and industry participants would like to be able to judge the accuracy of the statistics, he says. The dimsums blog described problems with the Ministry of Agriculture's livestock statistical system in a July 2017 post.

The deputy director of the Ministry's Livestock Industry Office explains that the monthly monitoring of changes in the number of hogs and the number of sows was launched after a pork price spike got the attention of government leaders during 2007. The annual estimates of swine inventories, slaughter and pork production were not timely enough to anticipate shortages and surpluses, so authorities commissioned several government departments to supply regular data on the hog and pork markets. A reporting system was set up and began issuing monthly data in January 2009. Numbers are posted on an official Chinese government site.

The swine inventory numbers are derived from reports on hog and swine numbers filed monthly by 4000 villages around the country. (The official's explanation implies that the villages in the survey are rotated from time to time.) Veterinary personnel or village accountants in each village count all swine within the village's boundaries, whether held by rural households, privately owned farms, or companies. Reports are sent directly to Beijing, bypassing local officials who might be tempted to inflate or otherwise distort the data. With direct reporting, the office in Beijing can check with the village clerks to verify information. After compiling the reports each month, the Ministry publishes the percentage change in sow and hog numbers from the previous month and from the same month a year earlier.

The Ministry only reports percentage changes. The official explained that the Statistics Law designates the National Bureau of Statistics as the official source of all statistics. No organization can issue statistics that duplicate or conflict with the Bureau's numbers. The official says the National Bureau of Statistics only reports hog inventories at the end of the year while the Ministry reports monthly changes in the herd. (In fact, some of the Bureau's quarterly reports include hog numbers that are inconsistent with the Ministry's numbers.)

The agriculture official says the Ministry's swine statistics may not be entirely consistent with the National Bureau of Statistics numbers since they use different methods. The Ministry has not conducted a census, so it cannot accurately estimate the national number, the official said (In fact, the Ministry reported monthly hog and sow numbers from January 2009 until March 2012. The National Bureau of Statistics has not conducted a census either since ten years ago--a new one started this month.)

The village-based monitoring may be outdated now that swine production is shifting away from small-scale household-based production to large-scale farms operated by companies. In theory, the village reporting system captures all types of farms within its boundaries, but it covers only 4000 out of more than 700,000 villages in the country. Hogs--and especially sows--are becoming concentrated in large farms that are less likely to be under the purview of a village accountant.

The Ministry is adapting its monitoring system to the new farm structure. The official acknowledges that large numbers of village-based household farms have quit the business, and explains that the Ministry is now preparing a "scale livestock and poultry farm cloud reporting system" to supplement the village reporting system. The new system has been bid out to a company and is still in the trial stage. If the share of livestock on "scale" farms reaches 80%, they will give more weight to the new farm reporting system.

Private sector analysts consulted by the Southern Rural News reporter have differing opinions on the usefulness of the Ministry of Agriculture data. The general conclusion is that the sow inventory change reflects the general trend in the industry. Sows at reproductive age represent the production capacity of the sector: they produce 8-12 piglets that will be raised to market weight (or held back to add to the sow herd). Thus, a shrinkage in the number of sows can portend tight supplies of hogs 6-12 months in the future, and an expansion could mean abundant supplies on the horizon.

The chart below shows the correlation between the monthly change in sow inventories and the ratio of hog to corn prices--a measure of profitability. Some of the monthly changes of 2-3% in a single month seem improbable, and the magnitude of the decline during 2014-15 also seems hard to believe. Overlooking statistical blips, the changes seem to correlate to changes in profitability. Low hog-corn price ratios below 6:1 tend to coincide with shrinking sow numbers while a high hog-corn ratio during 2011 coincided with an expansion of sow numbers. The Ministry's numbers show a massive shrinkage of sow numbers that continued from 2014 through 2016. The number of sows has failed to increase during 2016, despite a record-high hog-corn price ratio as high as 10:1. Is the Ministry's village monitoring missing an expansion by large farms that are outside its villages? Or is expansion of China's swine industry constrained by environmental regulations, lack of managerial talent, or high costs?

Does the expansion and contraction of sow numbers predict the future course of hog prices in China? The relationship is not very precise, but increases in price do appear to follow contractions in sow numbers. The large contraction in sow numbers during 2014-15 was followed by increases in hog prices that reached a record level in mid-2016.
The Ministry's numbers on the hog inventory raise serious questions, however. The number of hogs has been almost perfectly flat every month since January 2015 (did someone fall asleep at the switch?). The chart below displays estimates of the Ministry's hog inventory calculated based on monthly percentage changes. The National Bureau of Statistics has reported quarterly inventory numbers intermittently since then which show fluctuations in hog inventories, including an apparent recovery during the third quarter of 2016. Later this month, the Bureau will likely report its December 2016 hog inventory statistic.

Sunday, January 1, 2017

Countryside Clean-up on China's 2020 Agenda

China's President highlighted the importance of cleaning up and recycling agricultural waste in his plan to achieve a "well-off society" by 2020.

President Xi Jinping made the comments in his capacity as chairman of the central financial leadership group meeting on December 21, 2016. The Ministry of Agriculture's project to increase the rate of treatment and recycling of livestock and poultry waste in selected pilot counties was one of 165 major projects endorsed at the meeting. The main objective is to use waste to make biogas and natural gas as a source of rural energy and utilize the residual as organic fertilizer.

According to the August document announcing the Ministry of Agriculture's rural waste treatment pilot:
  • China annually produces 3.8 billion metric tons (mmt) of livestock and poultry waste, 
  • 60 million carcasses of dead and diseased animals and poultry are produced annually, of which only a small proportion are disposed of properly
  • 900 mmt of crop straw and stalks are produced, including 200 mmt that are not utilized
  • Farmers use 2 mmt of plastic sheeting annually, of which more than one-third is not recycled.
The document said the unrecycled and untreated rural waste is widespread, chaotic, creates a dirty countryside, and burning waste has a serious impact on the environment. Treating and utilizing the wastes meshes with the campaign to integrate crop and livestock production and to create a beautiful countryside.

The objectives for the pilot counties are:
  • Utilize 80 percent of livestock and poultry waste emitted by animals on "scale" farms
  • Dispose of all dead and diseased livestock carcasses in a safe manner
  • Utilize at least 85 percent of crop straw and stalks
  • Recycle or otherwise utlize at least 80% of plastic sheeting
  • Recycle empty pesticide packaging
The recycling program aims to jumpstart a market by encouraging and guiding companies to participate in recycling and waste treatment with government support. 30 pilot counties were to be chosen initially in 2016.

Pilot programs subsidizing organic fertilizer were started at various times this year. In Beijing's Mentougou the price of organic fertilizer was set at 570 yuan ($82) per metric ton. The government will subsidize 80 percent of the price. The basic subsidy is 200 yuan per metric ton in Shanghai, a county in Wenzhou, and two districts in Fujian. The subsidy is 300 yua per metric ton in Jinhua City of Zhejiang, and the subsidy is 350 yuan in Tianjian's Wujing District. There are limits on the amount that can be used on fruit orchards, grain and vegetable fields.

Saturday, December 31, 2016

China Corn Price Dips Again

Corn prices in China fell about 15 percent over the past month after a brief rebound during October-November. Chinese officials would like to export some of their surplus corn in 2017, but they are not willing to let their price fall low enough to be competitive on the world market.

According to an analysis by cofeed.com, tight supply conditions in the early months of China's 2016/17 corn marketing season have reversed. The peak season for corn sales has arrived, and weather and logistics factors that constrained corn marketing during October-November have now been alleviated. Cofeed says that farmers in northeast China have given up their reluctance to sell their corn after receiving their corn producer subsidies. They need to raise money to pay off loans and prepare for the Chinese new year holiday.

Demand for corn in China, meanwhile, is tepid. Hog farmers have stepped up their slaughter as the peak consumption season approaches, and there is little impetus to expand among either hog or poultry producers. Purchases by industrial processors motivated by subsidies of 100-200 yuan per metric ton in northeastern provinces have tailed off as commercial inventories piled up. A number of starch manufacturers in north China have shut down or cut back on production due to environmental regulations aimed at clearing up what may be the worst-ever air pollution in the region.

Futures Daily also reported that corn traders have seen a much larger volume of corn entering the market recently, and processors have received more deliveries than they can use. The spot price at ports in Liaoning Province has fallen to 1500 yuan per metric ton and the futures price for May 2017 delivery has fallen to the same level.

According to prices posted on the Ministry of Agriculture web site, cash prices at Dalian ports fell about 15 percent from November 24 to December 29.

Corn prices at ports in Dalian, China during 2016
Month Yuan/mt
24-Nov 1750-1780
30-Nov 1720-1740
7-Dec 1660-1680
14-Dec 1580-1600
21-Dec 1490-1510
29-Dec 1490-1510

Cofeed.com reports that the price for domestic corn arriving from the northeast in Guangdong province reached 1600 yuan per metric ton on December 26, down 310-340 yuan from late November. The estimated C&F price of U.S. corn arriving in Guangdong is estimated at 1570 yuan. Cofeed pronounces that imported corn has lost its price advantage. They forecast that China's corn imports will be about 2 mmt during calendar year 2017, down from an estimated 3.1 mmt in 2016.

There are also rumors that China plans to export corn. Cofeed reports that the Chinese government has issued export licenses to a number of large trading companies, and surmises that there is a strong likelihood that China will export corn in 2017.

Another online outlet reported that COFCO and at least one other state-owned company received corn export licenses in September, and linked China's corn export plan to the need to dispose of corn inventories. This report mentioned an initial estimate of 2 million metric tons for the export campaign, a volume that would put further downward pressure on international prices.

An article by COFCO's futures research institute anticipates that China could export large amounts of corn from the 2016/17 crop while channeling corn from massive reserves into the domestic market.

This month's corn prices at Dalian (the likely point of departure for any exports) translate to US$215-217 per metric ton, which does not appear to be competitive in nearby export markets. The average value of November corn imports by Japan ($188) and South Korea ($208) reported by customs statistics were lower than Chinese prices. Taiwan imported corn at $181 in October. There is speculation about whether Chinese officials will subsidize exports--that would be a violation of China's WTO accession commitment not to use export subsidies for agricultural commodities.

Despite their ambitions to export, Chinese authorities are taking action to prevent domestic corn prices from falling enough to be internationally competitive. At the beginning of the marketing season officials adopted an informal price floor of 1400 yuan per metric ton in northeastern provinces which they calculated to be the breakeven price that covers farmers' production costs (not including land rent). With renewed downward pressure on prices, Sinograin--the government's grain reserve corporation--is rumored to be preparing purchases of corn to hold the 1400-yuan "line of defense." Instead of the massive purchases used to support prices in the last 10 years, this year Sinograin is making small intermittent purchases and making announcements about their 1400-yuan price to put an informal floor under prices.

To put this informal price floor in perspective, the 1400-yuan "line of defense" is 30 percent less than last year's "temporary reserve" support price of 2000 yuan. The end of the temporary reserve program left a big hole in the northeastern corn market. Grain Bureau statistics show that only 36 mmt of the 2016 corn harvest had been purchased in major producing provinces as of December 25. That was 25.9 mmt behind last year's pace. The December 25 purchase volume also represents only 16 percent of the harvest reported by the National Bureau of Statistics.

China is moving at a snail's pace toward equilibrium in its corn market. Despite already-massive excess supply and huge reserves, the National Bureau of Statistics reported that 2016 corn production declined only 0.3 percent from the previous year. Cofeed estimates that corn consumption will be 190 mmt in 2016/17, which falls far short of the estimated production of 219.6 mmt. Chinese officials are targeting a decline in corn planting of only 10 million mu (670,000 ha). The COFCO futures analysis sees a possibility of a La Nina causing a surge in prices that would allow China to offload its reserves. Absent a catastrophic event or other market turmoil, it looks like China will have excess corn supplies for years to come.