Dim Sums: Agricultural Markets in China

This month, China held a "D20" summit of its top dairy companies to bolster confidence in the industry  which is still living under the shadow of the melamine adulteration incident that poisoned infants in 2008. Government officials hope to revitalize the industry by anointing a group of strong companies who agree to vigilant quality control, self-regulation, to invest in modern farms, acquire high-producing cows, plant forage crops, and build reputable brand names. The forum was addressed by top officials--Vice Premier Wang Yang, Minister of Agriculture Han Changfu, and a retired vice minister who heads the dairy industry association. It was held at the presigious Diaoyutai guesthouse in Beijing. Setting the tone for the conference, Minister Han praised the industry's achievements in recovering from the 2008 crisis, but acknowledged that the Chinese dairy industry faces quite a few challenges and difficulties. The 7-year overhaul of the dairy industry--encouraged by...

In Henan Province, winter wheat output (harvested in the summer) in 2015 was 35.2 million metric tons, up 5.2% from last year. However, heavy rains in the southern part of the province around harvest time caused wheat kernels to mold and fall short of standards for purchase. It could only be sold to feed mills at a substantial discount or stored by the farmer. As of August 15, only 16.4 mmt of Henan province's wheat harvest had been purchased, 3.4 mmt less than at the same time last year. There were similar problems in parts of neighboring Anhui Province. By August 7, eight million metric tons of Anhui's wheat had been purchased, 2.69 mmt less than last year. Henan Province has allocated 15 million yuan (about $2.35 million) to subsidize purchase of the substandard wheat. The funds will be issued to prefecture and county governments in affected regions and used to subsidize interest on loans to processing enterprises purchasing the moldy wheat. The loans are made by the...

Chinese officials are mulling a cut in this year's floor price for corn with a decision likely in September. China's high corn price has caused growing chaos in its corn market as its corn production, government stockpile, and imports of corn and related commodities have simultaneously spiked. Now the market is waiting expectantly for a "corn policy turning point." In July, China's imports of corn and its substitutes reached a record volume of 4.6 million metric tons for one month: Corn: 1.11 million metric tons Distillers Dried Grains: 1.1 mmt Barley: 1.28 mmt Sorghum: 1.11 mmt However, China's demand for animal feed is tepid. The Ministry of Agriculture said China's feed output was down 1.7% in the first half of 2015. Statistics tracking output by 180 Chinese feed companies found that feed production plummeted over 14% in the first four months of 2015 compared with the previous year. China's National Bureau of Statistics said the national ...

A subsidy designed to entice mills to grind up surplus grain in Heilongjiang Province has set off a "firestorm" in the local grain industry. One commentator described the subsidy as riddled with loopholes that "dug up rent-seeking worms." China has a massive overstock of corn and rice in Heilongjiang Province. In April, the province began offering a subsidy for processing grain purchased from the government's bloated stockpile and in June the subsidy was doubled. The new subsidy is 200 yuan for each metric ton of rice and 400 yuan for each ton of corn purchased from state reserves from April 15 through October 31, 2015. Rice must be milled and corn must be processed into starch or alcohol products. (Jilin Province has a subsidy of 150 yuan per metric ton for corn processing.) The controversy is over the list of companies eligible for the subsidy. Only mills with an annual capacity of 100,000 metric tons were eligible for the subsidy. The provincial governme...

Lost in the story about China's currency devaluation this week is the country's struggle to insulate itself from global farm commodity price deflation which has been going on for nearly two years (four years for cotton and sugar). Domestic Chinese prices of grains, oilseeds, and sugar are 30-to-40 percent higher than the price of imports at current exchange rates, and the recent 3-percent devaluation of China's currency against the dollar has only chipped away at that yawning price gap. An analysis of China's agricultural imports by its Ministry of Agriculture for the first half of 2015 shows that China's trade deficit in agricultural products shrank 20% from a year earlier. But a closer look shows a complicated mish-mash of surges and declines across various commodities. The 10% decline in agricultural import value reflects cheaper soybeans, plunging imports of edible oils, and a collapse of dairy imports.  Dimsums chart based on China Ministry of Agricultu...

Rumors have been swirling about how China will address its corn policy logjam. Chinese authorities have been struggling to insulate the country from agricultural commodity price deflation over the past two years. By supporting prices, authorities have piled up over 100 million metric tons of corn according to some estimates, and another near-record harvest is on the way. Chinese corn prices are some 30 percent above the price of imports, and authorities have made little progress in whittling down the corn surplus. Financial pressure is mounting. Something has to be done, but it has been difficult to agree on what measures to take. Grain and Oils News reported that "endless" rumors about impending corn policy changes have circulated one after another this year . Most rumors involve either eliminating the "temporary reserve" price support policy or cutting the support price after this fall's harvest. Other rumors included subsidies for transporting corn from th...

The Chinese State is intent on creating an economy dominated by corporate behemoths. Big, sprawling corporations are viewed as strong and easy for authorities to manipulate and control. Small, fragmented business entities are viewed as chaotic, undercapitalized, weak, and unstable. In reality, the flexibility and market knowledge of independent entrepreneurs is vital to the resilience of the country's economy. In many cases, the lumbering behemoths rely on the microenterprises to a surprising degree. China's grain marketing system is an example of the symbiotic relationship between behemoths of the corporate state and the organic microenterprise sector. In 2000, Chinese authorities created Sinograin , a sprawling state-owned corporation charged with managing its massive grain reserves. The company was created from the rump of the bloated grain marketing system that was chopped up and renamed at the end of the 1990s. Sinograin's initial registered capital was roughly US$ 2...

China's statisticians estimate the "summer grain" harvest--mostly wheat--at 141 million metric tons. They produced 4.5 tons (3.3%) more than last year, but China's wheat market already had a glut of the crop and demand from flour mills is weak. While an abundant harvest should be a happy event, many farmers are stuck with wheat no one will buy . A pile of unsold wheat in China's Henan Province. According to a report on wheat marketing progress  in China, demand for wheat from flour mills is weak this year and prices are down about 80-100 yuan per metric ton from last year. The Chinese government has a price support program to buy up wheat when prices fall below the minimum set by the government. As of July 23, the government's grain reserve company had already bought 29.2 mmt of this year's wheat harvest , but many farmers have moldy wheat that even the government refuses to buy. This year there were widespread rains at harvest time that cause...