Saturday, December 13, 2008

USDA raises corn estimate

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 indicate the harvest is good but not a bin-buster. A good corn harvest is part of the equation, but not the main driver of the current corn market situation. Global corn prices fell first. The Chinese corn market is partially insulated from the global market and its price trends tend to reflect those in the global market, but only weakly. Weak demand due to a slowdown in the livestock sector and slower industrial use are the big problems driving corn prices lower in China. Chinese farmers are holding on to their corn and other grain, waiting to see if prices get better.

The big corn number does reflect a bigger harvest and a glut of corn this year, but it's important not to expect any statistics about China to be precise. Take your Chinese corn with a grain of salt!

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