Dim Sums: Agricultural Markets in China

A Peoples Daily article this week signaled that China will allow its corn price to be determined by market forces. Although there is "consensus" that the corn market needs to be liberalized, nothing concrete was revealed about how or when the reform would take place because the details are "complicated." The article repeated and amplified remarks made in a January 10 speech by Chen Xiwen, the vice director of China's leading group on rural work. The Peoples Daily article was part of a series explaining the broader strategy of supply-side restructuring that China is pursuing in 2016. Like the steel and housing sectors, China's grain production has overshot consumption, and a huge unsold inventory has piled up. Chen Xiwen said one of the priorities this year is to prevent this stockpile from growing even bigger. Different from steel and housing, China has tried to prop up domestic grain prices by limiting  imports of grain and buying up surpluses to pr...

China is learning that not all soybeans are equal and you have to pay a premium if you want to consume and produce "non-GMO" products. China's shortage of non-GMO soybeans was one of the main topics of discussion at a meeting on the soybean market held by the Ministry of Agriculture during December 2015 in Heilongjiang Province. The area planted in non-GMO soybeans in China has been shrinking year by year while the demand for non-GMO cooking oil, food products, and protein supplements has grown. Meanwhile, the price of imported soybeans--which are predominantly genetically-modified--has been falling. According to data from the National Grain and Oils Information Center, the price gap between Chinese soybeans for food processing and imported soybeans grew to 1000 yuan per metric ton in mid-2015. The gap narrowed after domestic beans came on the market in the fall, but there is still a roughly 25-percent gap in price. This is a big change from past years when prices wer...

Are China's hog producers rebuilding their herds after a two-year decline, or is the industry still in the doldrums? Two different statistics issued by Chinese government agencies provide conflicting answers. You can pick the statistic that fits your point of view. Most market analysts follow monthly reports on changes in hog inventories issued by China's Ministry of Agriculture (MOA) which indicate a suspiciously constant number of hogs on farms throughout 2015 following a sharp drop late in 2014. An "official" hog inventory number buried in the National Bureau of Statistics GDP report this week reveals an expansion of 30 million head during the second half of 2015. This follows a 50-million head decline in hog numbers during the first half of 2015. One would have to dig out the numbers from obscure quarterly reports (the hog number was omitted from the third quarter report) in order to discover this apparent bounce in hog numbers. The trajectory of hog numbers...

Chinese authorities have pledged to spend billions of dollars this year to transform agriculture. They plan to fine-tune grain subsidies to encourage structural change in farming, boost farm productivity, and protect the environment. Officials say structural adjustment in agriculture is an "urgent task" for this year. The planned spending was summarized in a Zhongguo Caixin Bao article December 30, 2015. The biggest expenditures are on programs that have been in existence for a number of years, but they will be tweaked to focus on supporting new types of farms and making farming more productive and environmentally sustainable. Several new smaller programs are being introduced to accomplish these goals. China's planned expenditures for "agricultural transformation" in 2016 Program Million US dollars 20% of General input subsidy earmarked for "new-type" farms 3,344 Pilot programs steer "three subsidies...

China's top rural policy advisor estimated that China has 500 million metric tons of grain reserves. Chen Xiwen made the estimate at a January 10, 2016 economic outlook meeting held by the State Council. [errata, Jan 26: After reading the speech carefully, dimsums has discovered that news media misinterpreted Chen's speech. He said grain inventories are at a record but did not give an inventory number.] The director of China's grain bureau acknowledged that grain reserves are at a record level which he describes as "unreasonable."  He said southern rice storage is full, northeastern inventories remain at a high level, and there is a clear surplus of corn and rice. Grain purchase and storage will face "unprecedented conflicts" during 2016, the grain bureau director said. More storage space will be built, private storage will be rented, inventories will be released through various channels, and inventories will be shifted from one province to another....

Much like their ham-handed approach to financial markets, authorities in China are also in a quandary about how to deal with volatile agricultural markets. Chinese authorities are pinning their hopes on a "target price" subsidy method that was abandoned decades ago by the United States. They have revealed little about experiments with the program on a trial basis since 2014, but indications are that this approach is fraught with problems and clearly not ready to be rolled out on a large scale to other crops. The target price program calculates the difference between the local market price and a "target" set by authorities. When the market price is less than the target, the government makes a cash payment to each farmer based on his/her land area planted in soybeans. The subsidy was 60 yuan per mu (approximately $57 per acre) in Heilongjiang Province last year (2014/15). While it sounds simple on paper, the program is much harder to implement in practice. The...

China imported farm commodities at a robust pace during 2015 as Chinese buyers took advantage of bargains on the international market. With imported commodities as much as 40-percent cheaper than Chinese commodities, mills and processors are eager to buy imports even though Chinese markets are swimming in excess supply. Customs statistics for January through November 2015 reported by China's Ministry of Agriculture show that the volume of imports of most major commodities increased by double-digit percentages last year. Cereal grain imports for the first 11 months of 2015 totaled 30 million metric tons (mmt), 79-percent more than the same period in 2014. However, the value of those imports increased only 49 percent because prices fell. Barley and sorghum accounted for about two-thirds of the cereal grain imports. These two commodities are imported as substitutes for expensive Chinese corn. Barley imports were up 120 percent and sorghum imports were up 90 percent from ...