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
Inner Mongolia
see: and

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
Grain functional regions
Major crop protected regions
--Natural Rubber

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
--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. 

Monday, March 27, 2017

Soybean Target Price Policy Adjustment Coming

China's target price policy for soybeans will be adjusted in time for spring planting next month, according to a report by Grain and Oils News

The report about the subsidy reform is said to be based on information learned from the National Development and Reform Commission. Details on how the subsidy will operate have not been released yet, but the report suggests that the reform is intended to coordinate the soybean subsidy with the corn producer subsidy and encourage the shift from corn to soybeans in northeastern region. Officials say the new target price subsidy program will adhere to the principles of allowing the market to determine prices and broadening the number and type of buyers for farm commodities. 

An agricultural economist with China's Academy of Agricultural Sciences explains that the reform will address some problems with the target price policy that include: lack of control over price, high operation costs, and "moral hazard." He says the new target price policy will be "more sustainable" and "more compliant with WTO principles." 

According to the article, in 2016 Heilongjiang Province gave a subsidy of 150 yuan per mu to large-scale farmers, family farms, and farmer cooperatives that shifted crop area from corn to soybeans. The subsidy was focused on soybean-producing regions. 

The soybean association official explains that farmers are more inclined to plant soybeans this year due to the decline in corn prices. While Heilongjiang reportedly shifted 6.5 million mu of land from corn to soybeans last year, the profitability of soybeans still lags behind that of corn and the official suggests that more incentive to switch crops from corn to soybeans is needed. He doesn't explain how the target price policy adjustment will provide that incentive. Details are expected before next month's spring planting.

Tuesday, March 21, 2017

China Target Price Held Steady Through 2020

China will hold its target price for cotton steady at 18,600 yuan per metric ton for the next three years--unless authorities decide to change it.

A Q&A released by China's National Development and Reform Commission on March 17 explained that this is part of a "deepening" reform of the target price subsidy for cotton. The target price will be set by calculating the average production cost for the past three years and adding a "reasonable profit"--a kind of cost-plus pricing. The target price will be set once every three years instead of annually, and there will be an upper limit on the amount of subsidy a single recipient may receive. The subsidy only operates in Xinjiang Autonomous Region (although a number of other provinces have distributed their own "target price" subsidies as well).
The Commission explained that the three-year cycle for setting the target price is intended to give farmers firmer expectations about the price. Yet, the Commission also said that the State Council can change the target price at will within the three-year cycle based on factors like changes in market conditions or the government's ability to bear subsidy costs. That would seem to undermine the firm expectations.

The target price replaced the temporary reserve program in 2014. When the market price is less than the target price, the government pays a subsidy to farmers based on the shortfall between the market price and the target price.The initial three-year pilot program is now complete. The new target price of 18,600 yuan/metric ton is the same as this year's target price and will apply for 2017/18, 2018/19, and 2019/20. The market price has been below the target price during each of the first three years of the pilot.

The Commission proclaims the pilot a success for having narrowed the gap between domestic and foreign cotton prices, protecting farmers' profits, giving subsidies directly to farmers, raising profits for textile producers, reducing production in marginal regions, shedding huge government reserves, and improving cotton quality. The Commission says that farmers are now producing cotton demanded by downstream users instead of growing poor quality cotton to sell to the government.

However, the Commission acknowledges some conflicts and problems related to the pilot. Farmers and enterprises were unsure whether the subsidy would continue after the end of the three-year pilot, the Commission said. The yearly determination of the target price failed to give industry participants stable expectations which was said to prevent stability of cotton production. The Commission said farmers need to have stronger incentives to plant cotton and further improve quality.

Futures Daily said there will be pilot programs for other experimental cotton subsidies as well, including "insurance + futures" in which producers pay a premium to an insurance company (actually about three-fourths of the premium is subsidized) and receive an indemnity payment if the market price is less than a target. A linkage between subsidy and cotton quality will be set up in another pilot. Authorities apparently are not in a big hurry to decide on an approach to subsidies. Futures Daily said authorities will accumulate experience with different types of cotton subsidies that will guide the approach to overall subsidies.

Meanwhile, a group of least-developed countries are still hammering on the "western countries subsidize cotton farmers" meme. At the WTO, Benin led a proposal for "urgent action" to limit subsidies by developed countries. Apparently, nothing was mentioned about China creating the world's largest subsidized cotton base in its central Asian Xinjiang region while essentially shutting down its imports from the "cotton 4" west African countries--Benin, Mali, Burkina Faso, and Chad--during 2015 and 2016.

Saturday, March 18, 2017

Toxic Pesticides in China: 35-Year-Old Problem

This month, China's Minister of Agriculture promised to eliminate toxic pesticide residues from food, a problem that was has spiraled out of control even though China's leadership recognized it as a problem in the 1980s.

At a press conference held in conjunction with the National Peoples Congress, Minister of Agriculture Han Changfu was asked what officials are doing to address the Chinese public's concerns about residues of pesticides and veterinary drugs in food. Minister Han noted that the issue of pesticide residues in food comes up at these press conferences each year. He emphasized that China is moving in the right direction but he acknowledged that toxic residues in food remain a prominent problem.

Minister Han said that 39 highly toxic pesticides had been banned in the last few years, and 12 had been restricted to nonfood crops. There are plans to ban three more toxic pesticides. He claimed the proportion of highly toxic pesticides had fallen from 35 percent in the 1990s to 3 percent now. The Minister said more effort will be made to test vegetables for pesticide residues, to monitor the pesticide industry, and to limit entry to the industry. Great idea! But it has taken 35 years so far to deal with this problem.

Long-forgotten "Number 1 Documents" on rural policy issued by communist party leaders during the 1980s had already recognized toxic pesticides as a serious problem:
  • The first "Number 1 document" issued in 1982: "Put more effort into producing efficient, low toxicity pesticides, struggle to eliminate highly-toxic pesticides."
  • The 1983 "Number 1 document" contained similar language: "...eliminate highly toxic, low-efficiency pesticides as soon as possible."
When they said "as soon as possible," did they really mean "in 35 years or so"?

Mention of pesticides disappeared from "Number 1 documents" in 1984-86. The problem persisted, and measures were taken to deal with it. In the early 1990s, a "Green Food" certification was introduced to quell concerns of trade partners that Chinese food exports were tainted with pesticides and pollutants. Japanese companies procuring vegetables and fruits from China during the 1990s introduced measures to control use of pesticides. In 2001, the Ministry of Agriculture launched an action plan for "nonpolluted food" (无公害, which translates directly as "without public harm"), featuring certifications that production areas were free of toxic pesticides and pollutants and a network of testing centers intended to ease domestic consumers' concerns about pesticide residues.
Farm for producing "vegetables without toxic pesticide residues" in 2006, 
in the vicinity of the farms caught growing ginger with toxic pesticides in 2013.

By the time China's leadership started issuing "number 1 documents" again in 2004, food safety had become a major concern and pesticide residues were the top problem.

The document issued in 2004 focused on how to boost rural incomes and contained no mention of pesticides. But toxic pesticides and measures to deal with the problem appeared in all but three Number 1 Documents from 2005 to 2017.
  • 2005: "ban the production, sale and use of highly toxic, high-residue pesticides."  
  • 2006: nothing
  • 2007: "Actively develop new-type fertilizer and low-toxicity, high-efficiency pesticides"
  • 2008: "Accelerate research and development on high-efficiency, safe pesticides"
In 2007, the State Council launched a food safety action plan which said, "It is imperative to ban the unlawful production, marketing, and use of five kinds of highly toxic pesticides, such as methamidophos." The Minister of Agriculture in 2007 bragged that Chinese food exports had a lower rejection rate in Japan than products of the U.S. and E.U. Yet, in 2008 pesticides were back in the spotlight after a high-profile incident in which Japanese consumers were poisoned by dumplings laced with toxic pesticide, so...
  • 2009: "Launch special rectifications; resolve to stop illegal use of pesticides and veterinary drugs."
  • 2010-11: nothing
  • 2012-16: each document advocated promotion of low-toxicity, efficient pesticides.
In 2013, another scandal caught the public's attention when it was revealed that farmers in China's Shandong Province routinely used a toxic pesticide to produce ginger for the domestic market. Farmers didn't use the pesticide for exported vegetables which received greater scrutiny.

In 2016, China's Ministry of Agriculture launched a campaign to achieve zero-growth in pesticide and fertilizer use by 2020. This objective was included in the 2016 and 2017 Number 1 documents.
  • 2017: "Establish a complete chemical fertilizer and pesticide industry production supervision and product traceability system: place strict limits on entry to the industry."
The 2017 document contained an entire paragraph on "clean production" and green measures, greater prominence than in any previous document. Minister Han said at his news conference that they had begun training farmers in vegetable producing counties about how to use pesticides "rationally" and "scientifically." Another campaign is developing prevention and treatment teams to address pest and disease problems. Great, but these things have been done before.
Lab in Jiangsu Province for testing fish for veterinary drug residues in 2007. Spotless! Unused, maybe?

At the same press conference this month, the Minister promised to crack down on use of clenbuterol in livestock production. Authorities in China banned this substance 17 years ago, and clenbuterol was specifically targeted in the 2007 food safety action plan. Ten years ago the Ministry claimed that its testing had detected no clenbuterol for three years in a row. Yet, in 2011 a clenbuterol scandal implicated what is now the world's largest pork company. The following year, 2012, the Number 1 Document called for "Strict control of feed additives." This month, the Minister also singled out for rectification the use of two veterinary drugs--malachite green and nitrofurans--used in fish-farming. These were specifically targeted in the 2007 action plan. The objective of the State Council's food safety action plan a decade ago was stated as follows:
"By the end of 2007...the problems caused by the use of unlawful and banned pesticides, veterinary pharmaceuticals, and feed additives should basically be resolved."
While we're at it, we will point out that 1980s-era documents raised other concerns that have since risen to crisis levels: declining soil fertility, excessive chemical fertilizer use, and disappearance of organic matter from soils. These are also major problems the current generation of agricultural officials in China is trying address after years of neglect. The directive in the 1986 Number 1 Document,
"We must make efforts to raise the productive capacity of reversing the neglect of organic fertilizer and increasing organic matter in soils," 
is identical to mantras recited by China's agricultural officials today.

Minister Han is probably sincere about his resolve to eliminate toxic pesticides, as were leaders a generation ago who wrote the 1982 document. But the decades-long saga of Chinese pesticides shows that what government leaders say or do often has little bearing on what actually occurs on the ground. Problems can build up for years before decrees from Beijing filter down to the grass roots. Problems have to build up to crisis levels before local officials fall in line behind their central government comrades to take part in the dragon dance.

Thursday, March 9, 2017

China MOA S&D Estimates (Mar 2017)

China Ministry of Agriculture's supply and demand estimates (CASDE) for March 2017 were unchanged from the previous month except for a small reduction in the 2016/17 sugar production estimate.

Corn has been major a agricultural talking point for officials this week at the National Peoples Congress in Beijing: the necessity of allowing corn prices to fall, the need to get supply aligned with demand, and the monumental task of whittling away the corn reserves. The CASDE led off with a similar review of this year's corn supply and demand numbers, noting that the reduction in corn production in 2016/17 and the rebound in feed and industrial use will close the gap between corn supply and demand. The CASDE estimates would result in a further increase in corn reserves of 4.4 million metric tons during 2016/17. The CASDE authors observed that feed consumption is currently restrained by effects of avian influenza and low swine inventories, but they did not change their feed consumption estimate for 2016/17. The 2016/17 corn import estimate is unchanged from last month at 800,000 metric tons, down from 3.2 million metric tons in 2015/16.

China corn supply and demand (Ministry of Ag, March 2017)
Item Unit 2015/16 2016/17 Feb 2016/17 Mar
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 3.2 0.8 0.8
Consumption MMT 194.09 211.22 211.22
--Food MMT 7.65 7.82 7.82
--Feed MMT 121.01 133.53 133.53
--Industrial use MMT 54.17 58.25 58.25
--Seed MMT 1.66 1.61 1.61
Loss and other MMT 9.56 10.01 10.01
Exports MMT 0.01 0.5 0.5
Surplus MMT 33.73 4.41 4.41

Separately, Minister of Agriculture Han Changfu led off an interview with China's Central Television yesterday with the "hot topic" of corn. He stressed the importance of the 30-million-mu (2 million ha) decline in corn planting in 2016 for restoring equilibrium between supply and demand, and he said they hope for a further 10-million-mu (667,000 ha) reduction in corn planting in 2017. The Minister recommended that farmer friends plant whatever is profitable, but cautioned against piling into new crops (i.e. creating new surpluses of other commodities).

The CASDE noted that grain bureau statistics showed that 75 mmt of corn from the 2016 harvest had been procured in northeastern provinces as of February 28, 2017. This was lower than a year ago, but comparable to earlier years. They expect corn prices to remain steady.

Soybean estimates are also unchanged from February. CASDE expects imports to reach 85.31 mmt for 2016/17. The soybean write-up also mentions impact of avian influenza and low hog numbers on feed demand but did not change its estimated 85.5-mmt crush volume for 2016/17. More domestic soybeans are moving out of the northeast as transportation bottlenecks have eased and transport costs have fallen, but prices for domestic soybeans are still strong.

China soybean supply and demand (Ministry of Ag, March 2017)
Item Unit  2015/16  2016/17 Feb 2016/17 Mar
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 83.23 85.31 85.31
Consumption MMT 96.67 99.87 99.87
--Crushing MMT 82.89 85.50 85.50
--Food MMT 10.35 11.18 11.18
--Seed MMT 0.54 0.61 0.61
Loss and other MMT 2.89 2.58 2.58
Exports MMT 0.11 0.2 0.2
Surplus MMT -1.96 -2.19 -2.19

Cotton estimates are also unchanged this month. There is no mention of prospects for cotton auctions which have resumed after the end of the cotton procurement season. CASDE expects cotton stocks to decline by slightly less than 2 mmt in 2016/17, but the 9.13 mmt carry-out will still be 120 percent of annual consumption. Imports of cotton are estimated at just 900,000 mt this year.

China cotton supply and demand (Ministry of Ag, March 2017)
Item Unit 2015/16 2016/17 Feb 2016/17 Mar
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 0.02 0.01
End Inventory MMT 11.11 9.13 9.13

Vegetable oil production is unchanged at 25.89 mmt. Consumption is estimated at 31.43 mmt and imports at 5.6 mmt. Rapeseed growing conditions in China are said to be favorable and similar to last year.

China edible oils supply and demand (Min Agriculture, March 2017)
Item Unit 2015/16 2016/17 Feb 2016/17 Mar
Production MMT 25.3 25.89 25.89
--Soy oil MMT 14.74 15.17 15.17
--Rapeseed oil MMT 5.6 5.61 5.61
--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 20.41 21.4 21.4
--Rural MMT 10.76 10.03 10.03
Exports MMT 0.11 0.13 0.13
Surplus MMT -0.17 -0.07 -0.07

Sugar production is in its peak season, with 20 sugar cane mills in operation and most beet processors in operation. A 200,000-metric ton reduction in sugar cane output was made as farmers are holding back a larger portion of sugar cane for future production to take advantage of strong prices.

China sugar supply and demand (Ministry of Ag, March 2017)
Item Unit 2015/16 2016/17 Feb 2016/17 Mar
Planted area 1000 ha 1423 1433 1433
--sugar cane 1000 ha 1295 1270 1270
--sugar beets 1000 ha 128 163 163

--sugar cane MT/ha 60.3 60 60
--sugar beets MT/ha 53.85 52.5 52.5
Sugar output MMT 8.7 9.9 9.7
--sugar cane MMT 7.85 8.85 8.65
--sugar beets MMT 0.85 1.05 1.05
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 -1.67 -1.87

Saturday, March 4, 2017

Corn Reform Succeeds but Reserves Loom Over Market

China's corn market reform has succeeded beyond expectations but a full year's supply of corn in reserves still looms over the market, according to the Ministry of Agriculture's lead corn market analyst.

In an interview with China Times, Mr. Xi Gensheng of the Ag Ministry's Research Center for Rural Economy judged the cancellation of the country's corn floor price policy last year as a clear success by eliminating distortions in the market. Xi noted that the corn price in China has fallen faster than expected--to an average of 1400 yuan per metric ton in production regions, down from last year's floor price of 2000 yuan. The normal geographic pattern of prices in China--lowest in the northeastern provinces, highest in the south--has been restored. The price decline erased a big gap between Chinese and international prices that had persisted for three years. Xi said the sale price for corn is now 1600 yuan--lower than the 1709 yuan/metric ton estimated cost of imported corn.

Mr. Xi pronounces the decline in corn planting last year as a breakthrough in "supply side reform." Noting that the Ministry of Agriculture has a bigger estimate than the Statistics Bureau for last year's decline in area planted in corn, Xi exclaims, "Whether [the decline in corn area] is 20 million mu or 30 million mu, both exceed the target of 10 million mu."

Below the optimistic headline, Mr. Xi noted that there is still a mismatch between corn supply and demand in China. Xi estimated that the temporary reserve of corn still holds 230 million metric tons, which he describes as about equal to a year's production of corn and a record high.

Last year 42 million metric tons of corn reserves were sold--through auctions (21.8 mmt) and a one-time "rotation" of grain (20 mmt). Xi expects multiple measures and channels to be used to dispose of the remaining corn stockpile: by improving the auction system to sell more corn, favorable tax treatment for processors, giving tax rebates for exported corn products, subsidies to processors, transportation subsidies, supporting hog industry expansion to use up the corn, and considering an expansion of fuel ethanol capacity.

While lower prices that reflect market conditions are a guiding principle of supply side reform, Xi notes that Chinese leaders are warily watching the impact on rural income to ensure social stability.

Xi Gensheng estimates that the reduction in corn prices has cut profits for corn farmers. He observed that gross income for corn growers fell 205.64 yuan per mu in 2015 when the floor price for corn was reduced 10%, and he estimates that this year's price decline could reduce gross income by a further 300 yuan.

This year the government has issued corn producer subsidy funds totaling 39 billion yuan to three northeastern provinces.  Xi estimates that the payments to corn producers amount to 130 yuan per mu, much less than the decline in their income from lower corn prices. Mr. Xi said that disputes are common over who is entitled to the corn subsidy: the lessors who rent out the land or the large farmers who grow the corn. Producers outside the northeast do not get these subsidy payments. He also notes that the lack of coordination between the corn producer subsidy and soybean target price subsidy may impede corn area adjustment in Heilongjiang, the largest soybean-producing province.

(A separate article reported that rice vs. corn profitability was a consideration in reducing this year's minimum price for rice. It was feared that a huge surge in surplus medium grain rice production in the northeast region could result if the rice price was kept stable while the corn price is plummeting.)

Xi worries that large-scale farmers are under cost-pressure due to farmland rental costs. In Heilongjiang, he estimates corn farmers are losing 200 yuan per mu. In Shandong Province, corn farmers are losing 10-50 yuan per mu and some large farmers receiving lower prices are losing 200 yuan per mu. Large-scale farmers who don't get subsidies are giving up their rented land, Xi said.

If costs of land rent set by long-term contracts pose a "systemic risk", Xi speculates that the government may step in to "rescue the market."

Sunday, February 26, 2017

China: Milk for Well-Off Society

Officials have launched a campaign to promote China's domestic dairy industry as an essential foundation of the country's all-round well-off society. One of five initiatives to revive China's dairy industry, donations of milk to students in poor rural areas were the focus of the kick-off meeting held in Beijing on February 21, 2017.

Vice Minister of Agriculture Yu Kangzhen urged attendees at the meeting to "learn from the guiding spirit" expressed by General Secretary Xi Jinping during his January 24, 2017 inspection of an infant formula factory in Hebei Province. At the inspection, Xi pronounced, "Let the motherland's next generation drink good milk powder; this is of great concern to me."
General Secretary Xi Jinping tours farm supplying milk powder factory

According to the Ministry of Agriculture Press Office, China is in a stage where it is approaching the achievement of an "all-round well-off" (xiaokang) society by 2020, and dairy consumption is one of the important indicators of rising living standards. According to Press Office's account, "A well-off society cannot be without milk, and over a billion Chinese people cannot be without their own dairy industry,"
"Revive the nation's dairy industry; serve the well-off society."
While China's dairy consumption has risen greatly, per capita consumption is still only one-third of the world average and half the Asian average. It was pointed out at the meeting that only 20 million of China's 140 million students in primary and middle school are able to drink milk. The meeting emphasized an initiative to increase school milk donations in poverty-stricken regions.

The campaign will include publicity campaigns to encourage milk consumption. Donated school milk will labeled as part of the "China well-off dairy campaign." Eighteen fluid milk products and three milk powder products valued at 55 million yuan have been chosen for distribution to 110,000 students by various Chinese companies.

This is one of five campaigns to revive the Chinese dairy industry:
  1. Pasture and fodder improvement. Expand quality alfalfa production and shift land from producing corn to fodder crops.
  2. Raise good cows. Develop healthy farming, including county-wide standardized, scaled-up dairy farm initiatives and efficient, green development.
  3. Produce good milk. Upgrade quality and safety systems, develop quality-safety monitoring plans for fresh milk and conduct specialized remediations.
  4. Create brands. Form domestic dairy brands and manage the "D20" summit of the top 20 companies.
  5. Tell the dairy industry story. Develop the "well-off dairy industry" campaign, revive consumer confidence, promote dairy consumption.