Saturday, May 13, 2017

China's Agricultural New World Order

China has announced ambitious plans for international cooperation in agriculture that aims to create a new world order in agricultural production, technology, and international trade.

"Vision and Action for Building 'One Belt One Road' Agricultural Cooperation," appeared in its Farmers Daily newspaper with authorship attributed to the Ministry of Agriculture, National Development and Reform Commission, and China's State Council. It was posted May 12, 2017, just in time for the "One Belt, One Road" to be held in Beijing May 14-15 with dozens of world leaders in attendance. "One Belt One Road" is China's initiative to revive ancient trade routes between Asia and Europe, and which also run through poor countries in Asia and Africa. In addition to building railways and other logistic infrastructure and investing in factories, China hopes to take the lead in sharing its successful experience in agriculture with the "belt road" countries, lower barriers to trade, share information and technology, and work together on plans, financing, and rewriting the rules of international trade.

The vision for agricultural cooperation is described as an exploration of new models for global governance. The lengthy essay lays out China's motivation, principles and actions for solving world hunger, fostering a new era of rising agricultural trade and investment, promoting sustainable development, and cross-border sharing of technology and information. The document says the complicated global economy and China's increasing interconnections with international agricultural markets create a great opportunity for China's "Belt Road" initiative.

According to the document,
"China wants to do whatever it can to bear much greater responsibility, contributing Chinese wisdom in building up the international food and agricultural governance system, and sharing China’s experience with countries along the belt-road path to make a much greater contribution to agricultural development and economic growth." 
The document says “One Belt One Road” runs through the Asian, European and African continents. It connects the "active East Asian economic sphere with an ancient history of agricultural development" on one end with the "European economic sphere where modern agriculture has a clear advantage" on the other end. In the middle is "a vast hinterland of abundant agricultural resources with huge development potential, each region with its own advantage in agricultural resources, technology, production capacity, and markets with strong complementarity."

One Belt One Road focuses on six major economic corridors:

  • Asia-Europe land bridge 
  • China-Mongolia-Russia 
  • China-Central Asia-West Asia 
  • China-Southeast Asian Peninsula 
  • China-Pakistan 
  • Bangladesh-China-India-Myanmar.

It does not include the American continent, but the magnanimous document insists that no countries are excluded. The document invites companies from all countries to invest in One Belt One Road.

China's concept of agricultural cooperation encompasses government-government exchanges, research institutes and companies. The document recommends a "3-in-1" platform in which all three types of entities collaborate. It also calls for exchanges of technical and management personnel, germplasm, and agricultural policy dialogues. Exchanges of farmers and private organizations are also encouraged.

The document calls for streamlining inspection and quarantine procedures, working together on prevention and control of animal and plant diseases, promoting cross-border e-commerce. China also proposes to rewrite trade rules, mandate traceability systems and "jointly regulate market behavior."

China's international agricultural cooperation strategy offers few specifics. It calls for "strengthening" existing multilateral organizations such as the World Bank, FAO, WTO, and various regional organizations in Asia, the Middle East, and Africa, as well as new institutions like the Asia Infrastructure Investment Bank created by China. The strategy also aims to use existing meetings and forums on international development and food security while also developing new platforms such as a “One Belt One Road” agricultural cooperation partnership mechanism, an "agricultural planning research exchange platform," and commissioning a “one belt one road” web site with agricultural resources as "platforms for mutual sharing."

The most concrete (no pun intended) proposals are to set up agricultural technology parks, demonstration centers, and training bases overseas. It also mentions a pilot program to build domestic agricultural foreign-opening cooperation districts in China.

The ambitious document is packed with idealistic rhetoric about addressing global nutrition and food security, "sharing", respect, equality, and mutual interests. It contains some I'd-like-to-teach-the-world-to-sing verbiage about "moving forward hand-in-hand" toward a future of agricultural abundance and sustainable, and green development. Rhetoric about "south-south cooperation" evokes Mao's abortive attempts to become a leader of the nonaligned countries which was the genesis of China's original round of foreign aid projects during the last century.

Breaking the global dominance of the United States is an unspoken theme of the "Belt Road" project and the agricultural cooperation initiative. The document identifies the global financial crisis in 2008-09 and market fluctuations due to financial speculation as responsible for the complex global economic situation, without blaming the United States by name. While the United States is never mentioned, the "multipolar world" subtext suggests that the world needs a magnanimous, sharing, wise China to create an alternative to the U.S.-dominated agricultural trade and multilateral organizations.

This is rich, coming from a country that keeps grain reserves a "state secret," hides soil contamination problems, arrests people for reporting facts published in newspapers, routinely responds to questions about its policies at the WTO with one-word answers, and has a decades-old policy of turning agricultural imports and exports on and off like a faucet to "balance" domestic supply and demand.

Thursday, May 11, 2017

MOA S&D Estimates May 2017

China's Ministry of Agriculture issued its May 2017 China agricultural supply and demand (CASDE) report which included the first estimates for the 2017/18 market year. The report shows a 2.9-percent decrease in corn production estimated for the 2017/18 crop to 213.19 million metric tons. The decline is mostly due to a 2.5-percent decrease in corn area planted.

China corn supply and demand (Ministry of Ag, May 2017)
Item Unit 2016/17 Apr 2016/17 May 2017/18 May
Planted area 1000 ha 36,026 36,760 35,840
Harvested area 1000 ha 36,021 36,760 35,840
Yield Kg/ha 5,978 5,973 5,948
Production MMT 215.33 219.55 213.19
Imports MMT 1 1 1
Consumption MMT 210.72 210.72 215.07
--Food MMT 7.82 7.82 7.89
--Feed MMT 133.03 133.03 135.03
--Industrial use MMT 58.25 58.25 59.75
--Seed MMT 1.61 1.61 1.57
--Loss and other MMT 10.01 10.01 9.83
Exports MMT 0.5 0.3 0.3
Surplus MMT 5.11 9.53 -1.19

However, the report failed to mention that it also raised its estimate of 2016/17 corn output to 219.5 mmt--2 percent higher than the estimate of 215.33 mmt it had reported for the last four months. Thus, the May estimate of the 2017/18 corn crop (213.19 mmt) is only 1 percent lower than last month's estimate of the 2016/17 corn crop (215.33 mmt).

With a higher production estimate for 2016/17, MOA's balance sheet now shows a 9.5-mmt increase in corn inventory for the current market year. MOA expects a small 1.2-mmt reduction in corn inventory during 2017/18--reflecting a 7-mmt decline in output and a 4-mmt increase in consumption.

The mysterious increase in the 2016/17 corn production estimate appears to reflect the CASDE authors' belated decision to adopt the National Bureau of Statistics estimate of 2016 corn output and sown area. The Ministry of Agriculture's estimate of corn output was 4-to-7 million tons less than the NBS estimate each month since last July. The lowest estimate was 212.45 mmt in October. The MOA estimate was 215.33 mmt each month from January to April. The MOA estimates remained lower than the NBS estimate after it was released in December--until this month. No other changes in the 2016/17 corn balance sheet were made this month.

MOA estimates that Chinese soybean area increased 10.4 percent this year, but the increase in soybean output anticipated for 2017/18 is only 1.5 mmt. Soybean imports are expected to rise by 3.7-mmt to 93.16 mmt in 2017/18. The 2016/17 import estimate was boosted nearly 3-mmt this month. They attribute the increase in soybean use during 2017/18 to recovery of swine production and the substitution of soybean meal for other oilseed meals. Food use of soybeans is estimated to grow 7.7 percent. MOA anticipates a decline in prices for both imported and domestic soybeans during 2017/18--spurred by falling international prices--while prices for other commodities are expected to be steady.
China soybean supply and demand (Ministry of Ag, May 2017)
Item Unit 2016/17 Apr 2016/17 May 2017/18 May
Planted area 1000 ha 7,156 7,156 7,899
Harvested area 1000 ha 7,150 7,150 7,899
Yield Kg/ha 1758 1758 1785
Production MMT 12.57 12.57 14.1
Imports MMT 86.55 89.45 93.16
Consumption MMT 100.81 103.69 108.59
--Crushing MMT 86.12 89.01 92.50
--Food MMT 11.18 11.18 12.04
--Seed MMT 0.61 0.6 0.6
Loss and other MMT 2.9 2.9 3.45
Exports MMT 0.2 0.14 0.22
Surplus MMT -1.89 -1.81 -1.55

The cotton balance sheet had only minor changes. MOA expects a small rebound in cotton output to 4.88 mmt in 2017/18. According to MOA, cotton producers in Xinjiang are more eager to produce after high net returns last year and stable expectations due to the announcement of the subsidy policy for the next three years. Imports will remain modest, at 1.1 mmt and consumption flat, at 7.59 mmt. MOA notes an acceleration of cotton imports during the first months of 2017 due to a shortage of good quality cotton. Cotton stocks will continue their decline from 9.23 mmt to 7.61 mmt during 2017/18.

China cotton supply and demand (Ministry of Ag, May 2017)
Item Unit 2016/17 Apr 2016/17 May 2017/18 May
Begin inventory MMT 11.11 11.11 9.23
Planted area 1000 ha 3,100 3,100 3,200
Yield Kg/ha 1,523 1,523 1,523
Production MMT 4.72 4.72 4.88
Imports MMT 0.90 1.00 1.10
Consumption MMT 7.59 7.59 7.59
Exports MMT 0.01 0.01 0.01
End Inventory MMT 9.13 9.23 7.61

The edible oils balance sheet includes modest increases in production for soybean, rapeseed, and peanut oils for 2017/18. MOA says vegetable oil supplies are tight despite the end of auctions of rapeseed oil from domestic reserves. Overall edible oil consumption will rise 0.5 percent during 2017/18 due to rising population and urbanization. The end of rapeseed oil de-stocking will prompt an increase in rapeseed oil imports. Domestic peanut oil production will rise due to high returns attracting an increase in domestic peanut output.

China edible oils supply and demand (Min Agriculture, May 2017)
Item Unit 2015/16 2016/17 Apr 2016/17 May 2017/18 May
Production MMT 25.3 26.11 26.3 26.85
--Soy oil MMT 14.74 15.37 15.62 15.92
--Rapeseed oil MMT 5.6 5.6 5.53 5.71
--Peanut oil MMT 3.01 3.18 3.18 3.24
Imports MMT 5.81 5.6 5.6 6.2
--Palm oil MMT 3.39 3.25 3.25 3.75
--Rapeseed oil MMT 0.77 0.75 0.75 0.85
--Soy oil MMT 0.59 0.58 0.58 0.58
Consumption MMT 31.17 31.43 31.46 31.63
--Urban MMT 20.95 21.4 21.5 21.65
--Rural MMT 10.22 10.03 9.96 9.98
Exports MMT 0.12 0.13 0.13 0.13
Surplus MMT -0.18 0.15 0.31 1.3

The 2016/17 sugar production season is coming to a close. According to the text of the CASDE report statistics show a 5.1-percent increase in sugar cane production to 8.1 mmt (the table shows 8.2 mmt), and a 27.7-percent increase in sugar beet output to 1.05 mmt for 2016/17. MOA expects a further 13.5-percent increase in overall sugar output for 2017/18 due to strong plantings prompted by higher sugar prices. With the decline in corn prices this year, MOA sees a substitution toward corn sweeteners that will keep sugar consumption steady at 15 mmt. Imports for 2017/18 are also projected at 3.5 mmt, about the same as this year.

China sugar supply and demand (Ministry of Ag, May 2017)
Item Unit 2015/16 2016/17 Apr 2016/17 May 2017/18 May
Planted area 1000 ha 1423 1349 1349 1472
--sugar cane 1000 ha 1295 1181 1181 1277
--sugar beets 1000 ha 128 168 168 195
Yield
--sugar cane MT/ha 60.3 60 60 60
--sugar beets MT/ha 53.85 52.5 52.5 52.5
Sugar output MMT 8.7 9.25 9.25 10.47
--sugar cane MMT 7.85 8.22 8.2 9.23
--sugar beets MMT 0.85 1.03 1.05 1.24
Imports MMT 3.73 3.5 3.5 3.5
Consumption MMT 15.2 15 15 15
Exports MMT 0.15 0.07 0.07 0.07
Surplus MMT -2.92 -2.32 -2.32 -1.1

Tuesday, May 9, 2017

Foreign Aid Boosts Rice Seed Exports

China's new "Aid + Market" initiative blurs the lines between foreign aid and commerce by using technical assistance projects as a platform to export hybrid rice seed.

The program was announced in conjunction with a 500-billion yuan (?!) agreement signed last month between Longping High Tech Agriculture Co. and the Sanya Municipal research institute to set up a foreign market research and development center in Hainan Province. Longping is a seed company formed by two Hunan Province rice research institutes in 1999. It is named after its figurehead, Yuan Longping, known as "father of China's hybrid rice." The company has carried out Chinese rice demonstration projects in Southeast Asia, South Asia, and Africa for many years.

According to 21st Century Business Herald, the new strategy is part of the One Belt One Road initiative which aims to build new trade routes from western China to Europe through Central and South Asia. Many of the Belt-Road countries grow rice, and Chinese companies like Longping High Tech plan to set up demonstration farms and agricultural parks to disseminate their rice varieties and provide training. Chinese foreign aid projects are implemented by companies like Longping High Tech.

Longping High Tech's foreign aid will serve the public interest by disseminating high-yielding hybrid rice while also creating market opportunities. A spokesman for the company said technical training has already helped many Southeast Asian countries become self sufficient in food. Longping brand rice seed has become popular in some countries. The company says it has trade relations with 40 countries and exported 4100 metric tons of rice seed during 2015.

According to a company official, working in Belt-Road countries is challenging due to poor irrigation, weak infrastructure, lack of inputs, lagging breeding technology, lack of extension and few agricultural technicians. China's seeds are approved only for planting in designated regions, may not be suitable for conditions in other countries, and some nations strictly limit import of rice seeds.

In 2015, Longping set up an international company to research localization of seed, processing and sales. The company already has R&D centers and breeding stations in Pakistan, Philippines, India, Bangladesh, East Timor, Indonesia, Liberia, Angola, Nigeria, and Ethiopia. The company has 19 varieties of rice approved or registered for use in Pakistan, Philippines and other countries.

CITIC Group, China's state-owned finance corporation, became Longping High-Tech's largest shareholder in 2016, giving the company financial resources for aggressive international expansion.

Saturday, May 6, 2017

Pig Farm Demolition Conflicts

In 2007, when pork prices were soaring to record highs Chinese officials rolled out a half-dozen pig subsidies and sent rural bankers to knock on doors offering villagers loans to build pig farms. Now--exactly ten years later--the manure from these farms has become a severe pollution problem. The same officials are paying farmers to demolish their farms and either move them out of sight in the hinterland or find another way to make a living.

The Masses Daily reported a story from Shandong Province's Liangshan County last month that shows not everyone is happy with the farm-closure campaign at the local level, and not everyone is getting compensated for destruction of their property.

In Han'gai, a town in Liangshan County, there are about 200 small-scale hog farms. All of them are about 500 meters from villages, but local people still complain about the smell and large numbers of flies. The main concern, however, is the large volumes of untreated manure that washes into rivers and streams during heavy rains. Concern about water pollution is especially acute here because the eastern south-north water diversion channel passes through this county, so officials worry that manure from farms pollutes the water being channeled to the parched north.

Last year the farmers in Han'gai Town were given notice that they would have to close. Officials advised them to switch to growing vegetables, mushrooms or something else. Farmers inquired with local officials about compensation for demolition of their farms and were dismayed to find they would receive none. The Han'gai farmers asked why hog farms have been banned in the entire town while surrounding towns had banned farms only in certain areas. "What are we farmers supposed to do?" asked the frustrated Han'gai farmers.

A local official said the compensation is only given to farms that are scaled-up and had gone through proper procedures. Since there were no such farms in Han'gai Town, no compensation would be paid.

State Council regulations outlining the livestock farm environmental makeover issued in 2013 stipulate that the county or higher level of government should compensate farms demolished or moved due to changes in industry plans, land rezoning or rectification programs. The Masses Daily reporter remarked that the local official's explanation shows that the regulations are fictitious.

A separate article says that compensation in most places falls far short of generous compensation standards in Tianjin Municipality that have been widely circulated on the internet. In another county in Shandong, farmers receiving no compensation have not paid off loans for farms that are now being demolished.

The Masses Daily article then explains that the farm-closure campaign is aimed at weeding out small-scale farms that do not adequately treat and utilize manure from their pigs. The environmental remediation favors large scale farms because they have the capital to build manure treatment, storage and processing facilities to utilize manure as raw material for bioenergy and fertilizer.

A new round of subsidies is targeted at large-scale hog farms. The 2013 State Council regulations endorsed support for scaled-up, standardized farms and encouraged backyard farms to shift toward concentrated modes of production. This year Ministry of Agriculture plans to build 500 model hog farms of 5,000 to 50,000 head which can get subsidies of 500,000 to 1 million yuan. Gansu Province announced aid of 100,000 to 250,000 yuan for farms of 1000 head or more. Big companies like Wens Group, Da Bei Nong, Zhengbang, and COFCO have planned projects to produce millions of hogs in northeastern and southwestern provinces that have been designated as suitable for expansion.

The Masses Daily reporter judges that denying compensation to small-scale farmers is unreasonable. A lawyer quoted in the article suggests farms ought to receive compensation just as homeowners should be compensated for demolition of their property.

The Masses Daily surmises that the conflicts between farmers and government over demolition procedures and compensation have grown to a point where they cannot be resolved. The reporter opines that "Farmers are facing a life-or-death game," where they face the loss of their means of livelihood.

Monday, May 1, 2017

"Garbage Pigs" Regulatory Challenge

A campaign to curb garbage-feeding of pigs illustrates efforts of China's current regime to cope with the country's transformation to an urbanized economy by cleaning up the environment and repurposing "waste" as resources.

During April, Chinese news media in a number of cities ran articles calling attention to the hazards of feeding restaurant waste to pigs. The most prominent is an investigation of "garbage pigs" or "swill pigs" on the outskirts of Tianjin by China's national Xinhua News Service. The journalist reported finding a location outside Tianjin's ring road where about a dozen farmers raised 100-200 pigs each on waste gathered from restaurants. The operations consisted of a semi-enclosed area where waste cooked, crude brick sheds where pigs are kept, and crude brick structures that serve as living quarters for employees. Small vans loaded with blue barrels and plastic bags used to collect waste from restaurants were parked outside. The operation is conducted on land rented from a village for 8000 yuan per year (about 10 times the common rent for cropland).

According to the Xinhua article, the pigs raised on garbage have a higher proportion of fat than those raised on conventional grain-based feed. Their market weight is as much as 200 kg--nearly double the customary weight. The larger weight could reflect the lower cost of restaurant waste compared with conventional feed. Farmers say they sell the pigs to buyers from other places. (Other reports note that fatty pork from such pigs is preferred in regions further south in China.)

The Xinhua report warns that restaurant waste can contain germs and parasites that are spread to the pigs, raising their mortality rate and posing a risk of transmission to consumers of the pork from these pigs. These farms are also a main source of "gutter oil" produced by skimming oil from the waste as it cooks in giant vats and then recycling it for sale.

The anti-garbage-feeding campaign is part of a broad effort to clean up the country and boost recycling. It parallels a State Council program to upgrade household garbage disposal and recycling launched March 30, 2017. The impetus for the crackdown on garbage-feeding likely comes from a State Council directive to crack down on gutter oil issued April 15, 2017. Most of the news articles on garbage feeding mention the problem of "gutter oil" but they do not cite the State Council document. The document explains that "gutter oil" refers to fats and oils derived from food waste, wastes from meat processing, and uninspected byproducts from meat and poultry slaughter. The new document follows an earlier State Council document ordering a crackdown on gutter oil seven years ago.

Taiyuan City in Shanxi Province has drawn up new regulations that will prohibit unlicensed individuals from collecting restaurant garbage. The regulation will take effect May 1.

An article publicizing the regulations asks readers, "At night, if you see a small truck outside a restaurant collecting smelly waste, did you ever think about where this waste is being taken? How it will be used? Will it be taken to feed pigs or through processing return to the dining table?"

Taiyuan officials estimate the city has 9000 restaurants that generate 380 metric tons of waste daily. Sounding a theme common to these articles, the reporter frets that disposal of the waste is "chaotic" and "unsupervised."

City officials in Hohhot, capital of Inner Mongolia, have had regulations governing restaurant garbage collection for some years. But last month Hohhot organized a 15-day crackdown on illegal transportation of restaurant waste into the city's suburbs to preserve the safety of pork and other foods. The focus of the campaign is on small restaurants that violate the local garbage law. One restaurant raided had an agreement with the city to have waste collected but ignored the contract, instead supplying it to illegal pig farms. The penalty for violations is 500 yuan.

Xiamen, an island city across the strait from Taiwan, is in the midst of adopting a citywide system to collect and treat restaurant waste. Xiamen was chosen in 2015 as one of five national pilot cities for transportation and treatment of food waste. The city appears to be ahead of others, but officials are facing some challenges getting the food waste collection system up and running.

Xiamen used to have an active network of merchants who collected food waste and transported it to pig farms. Big hotels used to collect as much as 70-80,000 yuan annually for their waste, but last month they stopped coming to collect the waste. Hotel and restaurant owners are in a quandary over how to dispose of the waste now. They are now having to pay to have it hauled away.

Xiamen's hog farms have been closed now. The city has opened a waste treatment plant, but its initial capacity of 150 metric tons per day is already fully utilized. The capacity is planned for expansion to 500 metric tons. There are 58 trucks to collect the waste, but each one has a route of up to 35 km to pick up waste, haul it to the plant on the outskirts of the city and unload it. The city only allows these trucks to operate in the city about 5-6 hours per day. District environmental offices are responsible for registering restaurants for food waste pick-up, but it will take a while to get full coverage. Xiamen is estimated to have 30,000 food enterprises and dining halls.

The question is whether the crackdown on garbage-feeding is indeed a new phase in China's development. Or is it another two-week campaign that will soon be forgotten by officials when it is over?

Sunday, April 30, 2017

Migrant Survey: Chinese Job Growth Slows

China's rural migration stream has slowed to a trickle and wage growth has slowed sharply, according to the latest annual survey of migrant workers conducted by the National Bureau of Statistics.

The Statistics Bureau has estimated the number of rural people employed off-farm (农民工)each year from 2008 to 2016. The figures include those working near their permanent residence and those working away from their residence (migrants), but the survey excludes people working exclusively on farms. Note that farm employment and off-farm employment are not mutually exclusive: farming is now largely a part-time phenomenon in China. Many of the people counted by these employment estimates probably also spent some time farming. (The survey figures show that rural employees worked an average of 10 months during 2016.)

According to the survey, 281.7 million rural people were employed off-farm during 2016, an increase of 4.24 million from 2015. The number of rural people employed was equal to 36 percent of national employment in China during 2016, up from 30 percent during 2008 and 2009. The increasing percentage reflects millions of rural people moving from subsistence farming to paid employment.

Most of the rural residents' job growth during 2016 reflected increased employment near home; the number of migrants working away from home increased by only 500,000. Growth has slowed from the torrid pace set during 2009-2012 when employment grew 10-to-12 million annually. During those years of rapid growth, most employment gains were among migrants. The number of people working near home has been less volatile.

While there are some structural changes reflected in these numbers, the slower growth in employment largely reflects the cooling economy since 2012. The countryside has always been a reservoir of rural labor: migration to cities surges when the economy is in a growth cycle, and slows--or even reverses--when the economy tanks. Employment declined last year in two procyclical sectors--manufacturing and construction. Services employment increased.

Wage growth remains strong. The average monthly income of 3,275 yuan ($493) earned by employed rural residents during 2016 grew 6.6 percent from the previous year. Again, that was much slower than the double-digit growth posted from 2009 to 2013. Last year's wage growth was the slowest since the 5.7-percent growth in wages during the 2008-09 financial crisis. During 2016, the average wage earned by rural workers in northeastern provinces--the region hardest hit by the economic slowdown--actually declined.
While wages paid in Chinese currency went up 6.6 percent, the value of those wages in U.S. dollars increased less than 1 percent because the Chinese currency depreciated against the U.S. dollar. Calculations show that the average wage of rural Chinese workers was $2.25 per hour in 2016.

The peak in rural wage growth was during 2010-11 when rising wages and currency appreciation combined to boost the dollar-value of rural Chinese wages by over 25 percent. As nominal wage growth tailed off and the Chinese currency depreciated over the last three years, the dollar value of wage growth in China has plunged.

The slowdown in job creation is bad news for the planned structural adjustment of China's agricultural economy. The farming sector needs to shed labor in order to raise labor productivity, reduce unit costs of farm production, and increase earnings per farmer to make farming a viable career. To do this they need to entice more villagers to turn their land over to the new generation of scaled-up farmers, but a slowdown in job growth makes it harder to move people off the land. To make matters worse, crop prices have been stagnant or declining, and production of pork and poultry is down. Poor conditions in the farm economy depress rural income and reduce the rents that scaled-up farmers are willing to pay villagers for their land.

It's probably no coincidence that government officials are injecting large sums of cash into the countryside this year through a massive rural poverty alleviation push and initiatives to build high-standard farms and boost processing of farm products.

Monday, April 24, 2017

SOEs Buy 30% NE China Corn in 2016/17

Three State-owned companies purchased 30.562 million metric tons of corn from China's 2016/17 harvest, according to a Ministry of Agriculture update on the agricultural economy today. The purchases by the three companies--Sinograin, COFCO, and China Aviation--together accounted for 30.7 percent of all corn procured in northeastern China during the 2016/17 marketing season.

According to figures released at today's meeting, a total of 99.53 mmt of corn had been procured from the 2016 crop in the northeastern provinces as of April 23, 2017. That total is 48.316 mmt less than during 2015/16. The sharp decline reflects the ending of the "temporary reserve" program for 2016/17. While there was no formal price support program during 2016/17, the three state-owned companies were urged to buy corn in the northeastern provinces to ensure that farmers were able to sell their grain. Presumably, Sinograin, COFCO, and China Aviation are still holding much of the corn they purchased.

Chinese corn prices plummeted during 2016/17, even with purchases by the three companies propping up the market. The Ministry of Agriculture reported that corn prices received by farmers in the northeastern provinces were down as much as 30 percent from a year earlier. The National Bureau of Statistics reported that producer prices for corn were down 20 percent during the first quarter of 2017 compared with a year earlier.

In a separate announcement, Henan Province announced that corn will no longer be given subsidies for agricultural insurance premiums this year. This move appears to be meant to discourage corn production this year. The Province reported that its area planted in corn fell for the first time in 15 years last year, but the decrease was only 27,000 hectares on total planting of over 3.3 million hectares.

Thursday, April 20, 2017

Cash for Countryside and Migrants Boost Rural Income

China's rural residents saw faster income growth than urban residents during the first quarter of 2017, according to China's National Bureau of Statistics. Rural income growth came from migrant workers' income, injections of fixed asset investment, and soaring transfer payments to rural residents.

Average disposable income for urban people in China averaged 9986 yuan/month, while the rural average remained far behind, at 3880 yuan/month. But the statisticians found that the urban-rural gap between incomes is closing, which keeps China on track toward its goal of a relatively well-off society by 2020. Urban disposable income rose 6.3 percent, but rural disposable income rose 7.2 percent. The average urban income is now 2.57 times the average rural income--that's .02 less than a year ago!

China's agricultural GDP grew only 3 percent year-on-year, less than half the reported overall GDP growth of 6.9 percent in Q1 2017. Only a few crops like sugar cane and winter vegetables are harvested in the first quarter. Sugar production was up 6 percent, according to estimates by the Ministry of Agriculture. Meat production was stagnant at 0.5 percent from a year earlier. The swine inventory was up 0.1 percent from a year ago, essentially unchanged.

According to the National Bureau of Statistics, corn prices received by Chinese farmers during Q1 2017 were down 19.9 percent from a year earlier, while wheat prices were up 3.7 percent and rice prices were up 0.5 percent from a year earlier. Vegetable prices were down 11.6 percent, but fruit prices were up 9.4 percent from a year earlier. All livestock and poultry prices received by farmers fell from a year earlier. Poultry prices were down 7 percent and egg prices were down 17.5 percent from a year earlier.

The number of rural migrant workers totaled 172.53 million during Q1 2017, 2.7 percent more than the same time last year and a record high, according to the Bureau. The monthly income of rural migrants averaged 3483 yuan, up 6.4 percent from a year earlier. The combination of more rural people working off farm and higher wages pulled up the rural income average.

While agriculture had GDP growth of just 3 percent, its fixed asset investment was up 24.6 percent from a year ago, more than double the year-on-year growth in total fixed asset investment which grew 9.2 percent from a year earlier. These totals do not include fixed asset investment by rural households, but their investment is primarily in building and refurbishing their houses.

China is back to its old growth model of building things. Infrastructure investment was up 23.5% from a year ago, public infrastructure was up 27.4 percent, transportation was up 20.2 percent, and water management investment was up 18.3 percent from a year earlier.

Rural transfer payments are booming. The average rural income from transfer payments was 746 yuan per person, up 11.7 percent from a year ago. The National Bureau of Statistics attributes this rise a 52-percent increase in rural residents' revenue from government purchases of goods and services, a 22.5 percent increase in agricultural subsidies, and a 34.5 percent increase in aid to individuals.

Sunday, April 16, 2017

False Grain Statistical Reporting to be Addressed

An initiative to crack down on false statistics was announced in an April 10, 2017 circular posted on China's State Administration of Grain web site.

While progress had been made in reforming the statistical system for the grain marketing system, the circular said, "there are still some problems that cannot be ignored." The circular acknowledged that grain administrative departments in some localities do not give statistical work a high priority, some grain enterprises file untrue statistical reports, and it is urgent to raise the quality of statistical work.

The grain administration system will make renewed efforts to improve the truthfulness of grain data through several measures, although no details of the measures have been revealed. These include a grain statistics responsibility system and a statistical control system to check the numbers and hold officials responsible for quality of statistics. There will be "strict accountability" for local officials who falsify participants in statistical surveys or report fake numbers. Officials are instructed to find the reason for abnormal data and avoid passing up "sick data" from one level to the next which can lead to wrong policy decisions. Training and organizational changes will also address the false data problems.

Note: this reform applies to statistics on procurement, sales, and reserves of grain which are reported by local warehouses, granaries, and processors on forms filed and passed up through the grain administration. In particular, the massive procurement of corn reported in 2015/16 exceeded the amount of corn produced in at least one province--but the circular did not mention this or any other examples of false statistics. This particular initiative does not cover statistics on grain production, which are collected and published by the Statistics Bureau, a completely different administrative organization with little or no interaction with the Grain Administration. All statistical agencies are under orders to improve the "truthfulness of statistics" based on dictates issued by the State Council.

Saturday, April 15, 2017

China Corn Subsidies Distributed to Farmers

Corn producer subsidy payments are being distributed to farmers in northeastern China. An informational bulletin assures farmers that they can expect payments soon as local authorities complete the procedures and disburse payments that vary from 130 to 200 yuan per mu.
Farmers check subsidy distribution list 

The corn producer subsidy is being issued in two batches. The first disbursement of 30 billion yuan ($4.35 billion) has already been distributed and the second batch of 9 billion yuan ($1.3 billion) is in process. Jilin, Liaoning, and Inner Mongolia have disbursed the second batch of funds to local governments, but Heilongjiang is still processing and verifying information. The first batch of subsidies was estimated to be 135 yuan per mu, on average, and the second batch 40 yuan per mu. Local authorities deducted 10 percent from their corn subsidy fund allocation (10% of 30 billion yuan) to use for a crop planting structural adjustment program. The amount of the subsidy per mu of corn planted is calculated by each local government, so it varies from place to place.

According to the bulletin, Inner Mongolia's Chifeng Municipality has distributed 202 yuan/mu (equal to about $178 per acre) for the two subsidies combined to its 520,000 corn producers. Jilin Province is verifying the subsidy fund allocation to cities based on a formula that gives equal weight to area and output of corn. Farmers in Yushu Municipality are expected to receive 160 yuan/mu ($141 per acre). The highest subsidy in Jilin Province is 209 yuan/mu in Gongzhuling Municipality, and the highest in Liaoning is 200 yuan/mu in Huludao Municipality's Nanpiao District.

Rural households, family farms, farmer cooperatives, and "outside entities" renting land to grow corn on legally approved land are entitled to a corn producer subsidy. There are several instances where the subsidy will not be paid:
  1. Corn planted on land that is not designated as "cultivated land", i.e. corn planted on land designated for forest, as grassland or wetland.
  2. Corn planted on land placed in a "grain for green" land retirement program to convert farmland to forests or grassland.
  3. Corn planted on cultivated land that has been requisitioned by the government with compensation paid to farmers (farmers have resumed planting crops without permission on some requisitioned land that is unused because the development project has not started.)
  4. Corn planted on rented land for which there is no signed rental agreement specifying which party is entitled to subsidy payments.
A second bulletin explains the subsidy process. Farmers had to apply to their village committee to receive the subsidy. The village committee compiled information from their village members and passed it up to the township agricultural officials who compile it again and publicly post subsidy applicants and their reported area for at least 7 days. If no one raises objections, the information is compiled and verified again and delivered to the county financial bureau.

The central government disburses a set amount of funds in two batches to each of the four provinces where the program operates (see table below). The provinces then allocate funds to municipalities and counties based on the data submitted by farmers. Each locality calculates the subsidy per mu of land and disburses it to special electronic bank accounts for each farmer accessible with a bank card.

2016/17 corn producer subsidy funds disbursed to Chinese provinces (million yuan)
First batch
Second batch
Total
30,038.60
9,000.00
Inner Mongolia
6,625.15
2,045.20
Liaoning
4,577.88
1,413.20
Jilin
7,263.06
2,242.11
Heilongjiang
11,572.51
3,299.49
see: http://www.ncw365.com/uploadfile/2016/1114/20161114111046134.jpg and http://www.mrrao.com/article/53421.html

Imports of Corn and Substitutes Continue

While China's Ministry of Agriculture has proclaimed that domestic corn prices have fallen enough to choke off imports, commercial reports say imported corn substitutes still have a clear price advantage over Chinese corn. Low prices of imported corn and substitute grains could undermine plans of Chinese authorities to release domestic corn reserves into the market in coming months.

According to a report this week, imported substitutes for Chinese corn retain a clear price advantage. Corn markets in northern and northeastern China are generally tight, maintaining firm prices for domestic corn shipped to southern corn deficit regions. At Guangdong Ports, the cost of corn arriving from ports in Liaoning Province on April 12 was 1730-1750 yuan/mt, up 30 yuan from the week before. However, the cost of imported U.S. sorghum was reported to be 1640-1650 yuan/mt, and imported Australian barley cost 1540-1550 yuan/mt. The report said feed mills are gradually increasing their use of imported corn substitutes.

The report said 28 vessels of Ukrainian and U.S. corn totaling 1.54 million metric tons (mmt) are due to arrive at southern China ports during May-August, 2017--the same time Chinese authorities will be holding auctions of domestic corn reserves. Another 8 vessels of sorghum and 8 vessels of barley are also reportedly on the way. As of April 12, commercial inventories of feed grains at Guangdong ports were already adequate, at an estimated 1.3 mmt.

One report describes "psychological warfare" between participants in China's domestic corn market as they negotiate prices with rumors swirling about upcoming auctions of government corn reserves. At present, corn supplies are tight in China's corn-producing regions and prices are firm as farmers have sold most of this year's new crop of corn. The price for corn arriving at ports in northeast China's Liaoning Province ports is 1600-1610 yuan/mt and the reported price for shipment in bulk is 1650-1660 yuan/mt.

But next month the government will begin auctioning old corn from its reserves, and rumors of large volumes and low prices for the corn auctions are circulating. Some rumors say opening prices could be as low as 1250-1350 yuan/mt. Market participants, therefore, worry about being caught with high-cost inventories if the auctions put downward pressure on prices next month. Some warehouses at the northeastern ports have reportedly stopped buying new corn, forcing traders to cut prices slightly by about 10 yuan/mt despite tight supplies of new-crop corn.

Downstream demand for corn is reportedly soft at present. Hog inventories are reportedly at a low level and there has been a large drop in demand for poultry feed. Starch processors are profitable in Jilin Province where the provincial government is giving a 200 yuan/mt subsidy and corn prices are relatively low, but processors in Shandong Province are losing money paying 1700-1780 yuan/mt for corn.

Authorities appear poised to manage the corn auctions to prevent downward pressure on market prices. Hunan Province's branch of Sinograin, China's Grain Reserve Corporation, held auctions of 32,150 metric tons of corn produced in 2015 over the last two weeks to test the waters, but the minimum price was set at 1800 yuan/mt, above prevailing prices. The auctions sold 44 percent of the corn offered.

The availability of lower-priced imported corn and substitutes will constrain the release of old corn from reserves over the next 4-5 months. With cash prices for domestic corn higher than the cost of imported sorghum and barley at southern ports, sales of old corn from reserves may be slow unless authorities allow auction prices substantially lower than current cash prices. If authorities want to keep market prices firm they may be forced to continue holding old corn in reserves.

Thursday, April 13, 2017

Regional Delineations to Protect Chinese Crops

China's latest food security scheme is to designate 67 million hectares of cultivated land as "functional regions" devoted to 3 cereal grains and "protected regions" for 5 other key crops. These regions will be targeted for strict controls of land use, investments in infrastructure, subsidy programs, nurture of new types of farm operations, close monitoring by remote sensing, detailed mapping and databases.

The program was announced in an April 10, 2017 State Council document, "Guidance on Establishing Functional Regions for Grains and Protected Areas for Major Crops." According to the document, this regional delineation approach is part of President Xi Jinping's new concept and strategy for national governance. The document explained that areas best suited to each crop will be "scientifically delineated" to maintain "basic self-sufficiency" in cereal grains and maintain effective supply of other major crops.

The total area covered by these regions is planned for 1.04 billion mu (69.3 million hectares), which encompasses 51.2% of China's current cropland base, and 67% of "permanent farmland." Grain functional areas for rice, wheat, and corn are planned to cover 60 million hectares, and protected areas for soybeans, cotton, rapeseed, sugar, and natural rubber will cover 15.9 million hectares (note: the two types of areas sum to more than the total because some land will be included in more than one category). The targeted size of each crop's functional or protected area encompasses most of the area planted in each crop during 2016 (see table).

China's plans for functional and protected crop regions
Targeted region area
National area planted, 2016
Million hectares
Two regions combined
69.3
Grain functional regions
60.0
--Rice
22.7
30.2
--Wheat
21.3
24.2
--Corn
30.0
36.8
Major crop protected regions
15.9
--Soybeans
6.7
7.2
--Cotton
2.3
3.8
--Rapeseed
4.7
7.5
--Sugar
1.0
1.6
--Natural Rubber
1.2
na

In a Q&A with journalists, Minister of Agriculture Han Changfu explained that this idea originated with Zhejiang Province which designated 8 million mu as a functional grain production area in 2010. Directives to establish national functional areas for grain and protected areas for other crops have been included in the State Council's "Central Document Number 1" each of the last three years, and the idea was included in the 13th five-year plan.

It will take 3 years to delineate the plots of land to be included in the functional and protected regions by giving instructions to provinces and to successively lower levels of government to choose suitable fields. The plan will take 5 years to get up and running. Relatively good, flat land will be chosen for the key regions, while land on steep slopes, wetlands, other land eligible for land retirement programs, and land with slope of 15 degrees or more will be excluded. In plains, contiguous fields of 500 mu (33 ha) will be chosen to facilitate mono-cropping, investment in irrigation networks, roads, mechanization and infrastructure. Smaller contiguous fields of 50 mu (3.3 ha) will be chosen in hilly regions.

Land use plans will be strictly enforced within the regions to ensure that a minimum production capacity is maintained. Investment in fixed assets will be focused on the regions, and reforms of agricultural lending and credit will also be targeted to these regions. Maps and complete records of each plot of land will be stored in a database, and management will be precise and automated. Fields will be monitored with remote sensing. Subsidies and transfer payments will be concentrated in the regions and the "precision" of subsidies will be increased to better motivate local officials and farmers. Pilot programs on price and income insurance will be explored in these regions and officials hope to achieve full agricultural insurance coverage.

While official propaganda describes this as a "new idea", agricultural officials have been issuing similar "advantaged regional layout plans" for specific commodities for decades. This time there will be more technology, more money, and strict enforcement of rules on land use.

Ministry of Ag S&D Estimates (Apr 2017)

Only modest changes were made in commodity supply and demand estimates released in the April 2017 China Agricultural Supply and Demand Estimates (CASDE) released by the Ministry of Agriculture.

Feed use of corn for 2016/17 was revised downward by 500,000 mt due to low inventories of swine and continued high imports of corn substitutes--sorghum and barley. However, 2016/17 soybean consumption was raised by 940,000 mt due to an increase in consumption of soybean meal for feed.

Corn imports for 2016/17 were revised upward to 1 mmt, which CASDE authors attribute to high operation rates by industrial processors in the northeast (the logic is not clear here, especially since the CASDE made no change in consumption of corn for industrial processing) and an increase in imports of cheap corn from Ukraine. (Note: the CASDE balance sheet has included the wrong 2015/16 corn import number since February.)

China corn supply and demand
(Ministry of Ag, April 2017)
Item Unit 2015/16 2016/17 Mar 2016/17 Apr
Planted area 1000 ha 38,117 36,026 36,026
Harvested area 1000 ha 38,117 36,021 36,021
Yield Kg/ha 5,892 5,978 5,978
Production MMT 224.58 215.33 215.33
Imports MMT 5.52 0.8 1
Consumption MMT 194.09 211.22 210.72
--Food MMT 7.65 7.82 7.82
--Feed MMT 121.01 133.53 133.03
--Industrial use MMT 54.17 58.25 58.25
--Seed MMT 1.7 1.61 1.61
--Loss and other MMT 9.56 10.01 10.01
Exports MMT 0.01 0.5 0.5
Surplus MMT 35.99 4.41 5.11
*2015/16 import volume shown in CASDE should be 3.2 mmt; surplus is also overstated.

Soybean imports for 2016/17 were revised upward to 86.55 mmt, 1.24 mmt more than estimated last month. CASDE expects soybean import demand to be stimulated by low world prices attributed to a record harvest of South American soybeans. CASDE explains that the expected increase in soybean meal consumption is due to its price advantage over other feeds.

China soybean supply and demand
(Ministry of Ag, April 2017)
Item Unit  2015/16  2016/17 Mar 2016/17 Apr
Planted area 1000 ha 6,590 7,156 7,156
Harvested area 1000 ha 6,590 7,150 7,150
Yield Kg/ha 1,762 1758 1758
Production MMT 11.61 12.57 12.57
Imports MMT 82.89 85.31 86.55
Consumption MMT 96.67 99.87 100.81
--Crushing MMT 82.89 85.50 86.12
--Food MMT 10.35 11.18 11.18
--Seed MMT 0.54 0.61 0.61
Loss and other MMT 2.89 2.58 2.9
Exports MMT 0.11 0.2 0.2
Surplus MMT -1.96 -2.19 -1.89

CASDE revised its estimate of 2016/17 edible oil production upward by 220,000 mt to 26.11 mmt. This reflects mainly a 200,000-mt increase in soybean oil production, which in turn reflects larger imports of soybeans. Rapeseed oil production has been revised downward by 10,000 mt due to poor growing conditions in some regions.

China edible oils supply and demand (Min Agriculture, April 2017)
Item Unit 2015/16 2016/17 Mar 2016/17 Apr
Production MMT 25.3 25.89 26.11
--Soy oil MMT 14.74 15.17 15.37
--Rapeseed oil MMT 5.6 5.61 5.6
--Peanut oil MMT 3.01 3.18 3.18
Imports MMT 5.81 5.6 5.6
--Palm oil MMT 3.39 3.25 3.25
--Rapeseed oil MMT 0.77 0.75 0.75
--Soy oil MMT 0.59 0.58 0.58
Consumption MMT 31.17 31.43 31.43
--Urban MMT 20.95 21.4 21.4
--Rural MMT 10.22 10.03 10.03
Exports MMT 0.12 0.13 0.13
Surplus MMT -0.18 -0.07 0.15

No changes were made in the cotton S&D.
China cotton supply and demand (Ministry of Ag, April 2017)
Item Unit 2015/16 2016/17 Mar 2016/17 Apr
Begin inventory MMT 12.8 11.11 11.11
Planted area 1000 ha 3,267 3,100 3,100
Yield Kg/ha 1,510 1,523 1,523
Production MMT 4.93 4.72 4.72
Imports MMT 0.96 0.90 0.90
Consumption MMT 7.56 7.59 7.59
Exports MMT 0.02 0.01 0.01
End Inventory MMT 11.11 9.13 9.13

CASDE revised its estimate of 2016/17 sugar output downward by 450,000 metric tons to 9.25 mmt. Agricultural officials on the ground have observed that area planted in sugar is less than previously estimated.
China sugar supply and demand (Ministry of Ag, April 2017)
Item Unit 2015/16 2016/17 Mar 2016/17 Apr
Planted area 1000 ha 1423 1433 1349
--sugar cane 1000 ha 1295 1270 1181
--sugar beets 1000 ha 128 163 168
Yield
--sugar cane MT/ha 60.3 60 60
--sugar beets MT/ha 53.85 52.5 52.5
Sugar output MMT 8.7 9.7 9.25
--sugar cane MMT 7.85 8.65 8.22
--sugar beets MMT 0.85 1.05 1.03
Imports MMT 3.73 3.5 3.5
Consumption MMT 15.2 15 15
Exports MMT 0.15 0.07 0.07
Surplus MMT -2.92 -1.87 -2.32

Wednesday, April 5, 2017

Price Index for Pork Futures

A pork price index will be the first item to be produced by an "action plan for information on major agricultural commodities" signed by China's Ministry of Agriculture and the Dalian Commodity Exchange on March 24, 2017.

According to the Ministry of Agriculture's terse announcement, the plan encompasses exchange of data resources, analysis of price trends, issuance of statistical indicators and exchange of personnel between the Ministry of Agriculture's Information Center and the Dalian Commodity Exchange. The first project will be an indicator showing the average price of swine carcasses leaving processing plants. This indicator is in support of a pork futures contract to be traded on the exchange.

According to the announcement, the Ministry's Information Center will become a central player in "big data" and "informatization" of agriculture. The intent of the new index is to give farmers better market information so they can make better decisions, the announcement said.

The exact same promises about more and better market information smoothing out cycles in hog markets were made when China launched a "hog price alert" system in 2009. Three different departments were supposed to issue nine statistical indicators on a weekly and monthly basis to prevent market gyrations. The indicators appear in cryptic form on hard-to-find web sites or have disappeared altogether. There has been no stabilization of the market: producers over-expanded in 2012-14 and then engaged in a mass liquidation of sows--exactly what the statistical indicators were supposed to prevent.

The tie-up between government statisticians and the futures exchange sounds like trouble in a country where few have scruples about insider trading. It also opens up the possibility that the government could manipulate futures prices. This tie-up could undermine the credibility of both Ministry of Agriculture statistics and futures exchange prices without a firm separation between government statisticians and the trading community.

Tuesday, April 4, 2017

Corn Purchases Wind Down; Auctions on Horizon

Make way for the corn reserve dump! China's grain reserve managers are gearing up to begin selling off corn reserves in May. Officials hope to manipulate prices so they are high enough to keep farmers happy and low enough to keep feed mills in business and to choke off imports.

A report from China Grain and Oils News web site says that the Heilongjiang Province branch of China's Grain Reserve Corporation has lowered its purchase prices for corn for all grades by 100 yuan per metric ton. The report assures corn traders that this is not an indication of the onset of a bear market for corn. Rather, the across-the-board price cut is a signal that the Heilongjiang grain reserve depots are finished buying corn for the season. Normally, the purchasing season runs through April 30, but the report says the grain reserve corporation wants to stop early this year to prepare for sales of old corn from reserves that are expected to begin in May. The grain reserve corporation wants some time to calculate just how much corn they have on hand ahead of these auctions.

The report acknowledges that the grain reserve corporation has continued to place a floor under corn prices despite the elimination of the formal "temporary reserve" price support program a year ago. The report acknowledges that Heilongjiang grain reserve depots have been buying corn at posted prices, and their purchases have been removing significant amounts of corn from the market.

A March 28 report in Peoples Daily says that these "grain rotation" purchases constitute 20% of the 90-million-metric-ton (mmt) purchases of corn in northeastern provinces during the current marketing year. That works out to 18 mmt of corn taken off the market.

As of March 25, total corn procurement by all types of enterprises in all 11 major corn-producing provinces totaled 108.65 mmt. That was down 35 mmt from the same time last year when the "temporary reserve" purchases piled up huge amounts of corn in grain reserves. The estimated 18 mmt removed from the market this year nevertheless still equals 16% of all the corn purchased in China this year. That also means another 18 mmt added to reserves which were already huge at the beginning of the marketing season last fall.

This means an even larger amount of corn needs to be disgorged from bulging reserves, extending the de-stocking process further into the future. The precedents set by cotton and rapeseed--commodities which are going through the same process 1-2 years ahead of corn--indicates that the de-stocking process will become the focus of market analysis years into the future and imports will be minimized during the process using TRQ rules (see cotton) and/or unrealistic standards for foreign material in shipments (see rapeseed).

The National Development and Reform Commission will issue documents announcing auctions of corn from reserves which are expected to begin in May. Grain and Oils News assures traders there's no need to worry that the corn dump will depress prices. The auctions will have an opening price set to prevent downward pressure on prices.  Grain and Oils News says there is no sign of a bear market on the horizon, as May and September China futures prices remain firm.

Authorities are not willing to let corn prices fall to a level that would convince farmers to reduce corn production enough to equalize supply and demand. Instead, authorities are lecturing farmers and relying on "structural adjustment" plans to engineer the switch from corn to soybeans and fodder crops. Peoples Daily says corn planting went down 19 million mu in Heilongjiang last year, but corn is still being added to reserves. Heilongjiang plans for another 10-million-mu reduction in corn area this year to reach 86 million mu.

According to a report posted by the Grain Bureau, prices paid for corn in Heilongjiang during March 20-26, 2017 covered a wide range of 1160-1440 yuan/mt. Prices in Jilin Province were 1200-1460 yuan/mt, Liaoning 1356-1540 yuan/mt, and Inner Mongolia 1260-1750 yuan/mt. Prices at ports in Dalian for corn to be shipped to southern China were 1560-1580 on March 31. In Jinzhou, the price was 1600-1620 yuan/mt. The price in the south at Guangdong ports was 1700-1760 yuan/mt.

From May to September (when another new crop will be harvested), the grain reserve corporation will try to sell off as much of their corn stockpile as possible. According to Grain and Oils News, rumors are circulating that corn reserves from 2013/14 will be auctioned at prices of 1500-1600 yuan/mt (that would be at least a 33% discount from the 2013/14 purchase price). There are also rumors of unannounced sales of 2011/12 corn reserves to distillers and ethanol producers at a price of 1200 yuan/mt (the purchase price in 2011/12 would have been at least 1960 yuan/mt).

A separate item from Grain and Oils News reports a slightly different set of rumors. According to this report, the grain reserve corporation wants to sell 1.92 mmt of 2012 corn at 1400 yuan/mt and 860,000 mt of 2014 corn at 1450-1500 yuan/mt. Another 1.11 mmt of broken northeastern corn from 2012 is expected to be auctioned at 1100 yuan/mt. This second Grain and Oils News report emphasizes the potential for the sales to add to market supplies in southern China to cool off prices and to help feed mills "solve problems" by reducing the need to import commodities used as substitutes for corn.