Dim Sums: Agricultural Markets in China

According to a report from China corn market net on Dec. 26, traders say Chinese officials have decided to postpone their issuance of new corn export quotas, cut back on the amount of quotas, and may not give any policy support [e.g. VAT rebate] for exports in order to "control prices and ensure domestic supplies." The article says that China's decline in corn exports will allow American gain traders to maintain their Asian market share. Chinese corn prices have already bounced back from their two-year low due to the Chinese government's support of prices through increased reserve procurement. China mainly exports corn to South Korea and Japan. According to customs statistics, this year's exports through November totaled 235,379 mt, down 95%. This week the government required local grain bureaus to procure an additional 20 mmt of corn from farmers, bringing the total to 30 mmt. Here is the planned procurement in the latest round which is to be completed by the en...

Agriculture Minister Sun Zhengcai, speaking at a national agriculture work conference on Dec. 27, 2008, proclaimed that Chinese agriculture continued its stable development this year despite the challenging situation, achieving several years of breakthroughs. Grain output and yields have both increased five consecutive years, both reaching record highs. Grain production for 2008 is estimated at 528.5 million metric tons, an increase of 5.4%. Yield was estimated to increase 4.2%. Rural household income also saw a relatively good increase of about 8%, also a fifth-straight increase. Oilseeds production also recovered, reversing 8 straight years of falling self-sufficiency rates. There was a rapid recovery of hog production, livestock and aquaculture production continued stable development, and "vegetable basket" supplies were plentiful. Hog inventories were estimated at 470 million head for 2008, a 7.4% increase, and hog slaughter was estimated at 600 million, up 6%. There was ...

As if China needed more stimulus of artificial demand...The National Development and Reform Commission announced a 100 billion yuan stimulus spending plan for next year. It includes *construction of low-cost housing that will reconstruct urban migrant squatter settlements (10 billion yuan); *rural gas, drinking water, electrification, roads, and postal service projects, water management, rural cultural centers and other rural infrastructure stuff (34 billion); *railroads, highways, airports and other big infrastructure (25 billion); *basic health and family planning service system, repair and construction of schools in central and western provinces, medical clinics, education, cultural and social development (13 billion); *urban water treatment, solid waste disposal facilities, focus on water treatment and pollution prevention, energy conservation and ecological projects (12 billion); *independent innovation and production restructuring projects (6 billion). Financial departments have ...

A Dec. 19 article in the Economic Information Daily reports that this year's turbulent market environment is forcing Chinese food companies to look more closely at domestic markets. Chinese companies and officials have viewed themselves as a success if they exported. The domestic market was for the weak companies that couldn't make it overseas. This year's food safety incidents (pesticide-laced dumplings found in Japan, melamine in milk powder and eggs), the global economic crisis, and appreciation of the Chinese yuan have all contributed to a more sour outlook for Chinese food exports. The reporter gives the Longda Food Group, China's biggest processed food company, as an example. Longda's export sales (80% of them to Japan) fell 20% this year in terms of volume. The article reports that most food exporters have been raising prices. This reflects rising raw materials costs (i.e. food price increases), higher labor costs due to a new labor law this year, and other ...

China's cotton demand has fallen as U.S. demand for Chinese textiles has slowed. Textile manufacturers are closing or cutting back production as they experience losses and accumulate unsold inventories. Commercial reserves of cotton in November were 3.5 million metric tons (mmt), 10% higher than November 2007 (1.78 mmt in Xinjiang alone). Unsold textile and yarn inventories were up too. Enterprises were estimated to be holding 28.5 days of unsold textile products and 21.57 days of yarn inventory. As is the case in the soybean market, the government is the main active buyer as it procures cotton for government reserves to prevent prices from collapsing. On Dec. 9, the State Council issued a document floating ideas for policy support of the cotton market that featured planned procurement of 1.5 million metric tons (mmt) of cotton at 12,600 yuan/mt. According to one news report State procurement for cotton reserves totals 660,000 mt this year so far, but commercial reserves are still ...

In 2007 China’s hog supply was in a severe shortage situation and pork prices soared by about 50%. One of the key policies the government introduced was financial support for breeding sows. Apparently, the policy worked. According to an article from the China Animal Husbandry and Veterinary net , NBS data say the third quarter 2008 inventory of breeding sows was up 12.4% year-on-year. The inventory of all hogs was up 6.6% and hog slaughter was up 5.8%. There has also been an increase in the scale of hog farms. Traditionally, hog production has taken place on a very small scale in a “hog in every home” pattern. This year it is estimated that farms slaughtering 50 or more head account for over 70% of production. In past years, the share was reversed—about 70% came from “backyard” farms. The number of farms slaughtering 50 or more hogs is targeted to reach 50% of the total production nationally by the end of the year. The government at the central and local level is implementing all kinds...

In its December report, USDA raised its estimate of Chinese corn production this year to 160 million metric tons (mmt) from its previous estimate of 154 mmt. In comparison, China's National Grain and Oils Information Center (NGOIC) kept its estimate at 156 mmt. Nobody knows how much corn is produced in China. It is important not to take any statistics about China too seriously, no matter who produces them. As I understand it, this estimate is a based on crunching dicey preliminary Chinese numbers on provincial grain output and observing the very good weather during the growing season this year. Those provincial numbers don't break out corn separately and are routinely revised downward later. (The number-crunching took this into account, making assumptions about downward revisions in the numbers and the proportion of corn in total grain.) The danger is that analysts will see this and attribute falling corn prices to China's big increase in corn output. Reports from China ind...

Two articles posted on the China Price Bureau web site December 12, 2008 announced that Wal-Mart, McDonalds, and Kentucky Fried Chicken stores in China are cutting prices before and after the Chinese New Year (January-February). These price cuts are indicators of the serious lack of demand in the Chinese economy right now and possibly reflect desperate government efforts to get things going. McDonalds and KFC are giving out coupons that give discount prices on chicken nuggets and other items by up to 36%. KFC is giving out a coupon that cuts the price of a 6-piece chicken nugget meal from 11 yuan to 7 yuan during January; another coupon cuts the price of 2 pieces of chicken in February from 15 to 10 yuan. McDonalds is offering prices for meals that are lower than its prices from 10 years ago. Wal-Mart is cutting prices on groceries, clothing, health products, and furniture. For example, the price of chicken legs is being cut from 22.8 Yuan/500g to 14.8 yuan, a 35% price cut that cur...

As global commodity prices sink, China is struggling to support domestic prices, keep farm incomes from falling and preserve incentives to plant grain next year. Chinese corn demand is nearly stagnant as the livestock sector slows down. There is another surplus of pork and demand for milk and eggs has collapsed after the melamine incident. Meanwhile, China has had its fifth consecutive big grain harvest and now is cursed with a flood of grain that has little demand. Prices are on the way down, and farmers are keeping their grain in storage to see if prices get better later. The government has upped its purchases of corn and soybeans, but what does it do with all this grain in "temporary" reserves? In past years the government subsidized exports of surplus corn or turned it into ethanol. These ideas are being floated again. There is a rumor that an export quota of 5 mmt will be approved. Trouble is, Chinese corn is now much more expensive than corn on the world market. In pre-...

Highlights from Yumi.com cash corn market report, Dec. 5, 2008 China announced its increase in planned temporary reserve purchases in Heilongjiang Province: Soybean 1.03mmt, corn 1.3 mmt, paddy rice 2.6 mmt. Latest statistics on corn procurement as of Nov 20, in 10 major provinces (Hebei, Inner Mongolia, Liaoning, Jilin, Heilongjiang, Shandong, Henan, Sichuan, Shaanxi, Gansu) grain enterprises procured an estimated 4.929 mmt of corn, an increase of 3.746 mt from the same period last year. Of that total, 1.188 mmt (24%) was purchased for central reserves, up 0.996 mmt from last year. The NDRC, grain bureau, finance ministry, and agricultural development bank issued a notice that the national plan for temporarily increasing grain inventories will be raised by 14 mmt, including 7.5 mmt rice, 5 mmt corn, 1.5 mmt soybeans. Farmers are cautious in selling corn, waiting for the price to go up, so the actual pace of sales is sluggish. Farmers are eager to sell because they need to repay loans ...

Just a few months ago all the experts saw world food price inflation as a permanent fact of life. Now, following another record harvest and a big reversal in world commodity markets, China is struggling to keep commodity prices from falling. China had a big soybean harvest this year and demand is soft, so prices are falling. In October the government announced plans to buy 1.5 million metric tons (mmt) of soybeans from northeastern provinces for central government reserves at a price of 3700 yuan/mt. Market prices are still a lot lower. As of Dec. 5, the market price of soybeans in Jiamusi, Heilongjiang Province's biggest soybean production area, was 3400 yuan/mt, 300 yuan below the support price. Problem: imported soybeans cost only 3100 yuan/mt. Nobody wants to buy domestic soybeans. On Dec. 3, the government reserve purchase amount was doubled to 3 mmt. (Corn reserve purchases were also doubled to 10mmt.) Here are the numbers presented by the manager of a soybean crushing plant...