Saturday, September 5, 2009

China's corn crop: What's up (or down)

Northeastern China and parts of other provinces have had severe drought this summer. Recently there have been some rains, alleviating drought conditions, but the damage has already been done to the crop. It's a question of how much production will fall and there are widely differing opinions.

A report from on a field trip through the northeast painted a fairly dire scenario, showing fields that were dried up and comparisons of corn cobs from last year and this year. The report had a county by county estimate of corn production that showed declines of 50% or more in the worst-hit areas.

National Grain and Oils Information Center's latest weekly report downplays the effects of the drought. One segment of the report says that estimates of the reduction in corn output range from 5 to 20 mmt; another says the increase in area will probably offset the effects of the drought on yield.

Another report from the Jiangsu grain net says reports on field trips to the northeast from various organizations average out to a 20% decrease in production in that region. They say the current forecast is a decline of 15 mmt. As noted before, the anticipated decline in production is roughly equal to the amount of excess corn the government is holding in reserves. The corn in reserves has high moisture content and vulnerable to rot. Users are worried about mycotoxins.

Corn prices are on the upswing. Corn is over 1900 yuan/mt in Shenzhen now. The livestock industry finally seems to have recovered, so feed demand has picked up. A lot of corn from north China (Shandong/Hebei) was sent down to the south, so inventories are unusually tight in that region. The sales of corn reserves have been fairly brisk lately, offsetting some of the upward pressure on corn prices, but according to some reports it has been hard to get corn down to the southern regions due to transportation bottlenecks. Some small feedmills in the south have reportedly not been able to buy corn.

We may never know the actual impact. The harvest in the northeast is about a month away, and the time of first frost has a major impact on production. In that region, corn doesn't actually come to the market until November or later. In north China it's October. There are always stories at that time of year about farmers holding their corn off the market waiting for a better price or weather affecting the drying process for corn.

Recall earlier this year drought impacts on wheat were being reported as a major crisis, but statistics came out showing another huge harvest. However, field reports this summer say many farmers claim they lost big portions of their wheat this year.

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