Sunday, March 22, 2020

U.S. Soybeans: State-owned Customers in 2019

China's State-owned companies significantly increased their purchases of U.S. soybeans, while other Chinese companies bought mainly from South America last year.

China's customs data show that soybean imports by Beijing-based companies--which include state-owned COFCO, Sinograin, and Chinatex--reached 22 million metric tons last year--10 mmt more than they had ever imported in previous years. Meanwhile, imports by companies registered in other Chinese provinces dropped by a nearly-equal amount of 9.7 mmt. Beijing-based companies accounted for nearly 25 percent of China's soybean imports last year, about double their share in earlier years.

Another cut of the data shows that the boom in Beijing soybean purchases reflects a shopping spree for U.S. soybeans. Beijing companies bought 14.1 mmt of U.S. soybeans in 2019, up 11.9 mmt from the 2.2 mmt they purchased during 2018. Beijing-based companies' purchases of South American soybeans dropped by about 2 mmt.

In contrast, companies headquartered in China's two biggest soybean-crushing provinces continued to shun U.S. soybeans. Jiangsu and Shandong Provinces have the country's largest crushing capacity, and most of it is operated by multinational and private Chinese companies. Jiangsu-Shandong imports of U.S. soybeans dropped from 6.2 mmt to 1.3 mmt between 2018 and 2019. Last year, no U.S. soybean imports arrived in Shandong or Jiangsu from March to October. Most of Jiangsu-Shandong's soybean imports came from Brazil last year.

Imports by state-owned companies can be identified using the China's customs administration database which allows users to tabulate imports by the province where the importer is registered. The province where the importer is registered only loosely corresponds to the location of imports. (China no longer reports the customs district where imports actually arrived.) Companies registered in Jiangsu and Shandong Provinces have the most soybean crushing capacity and they account for the largest share of imports in most years.

Last year companies in Beijing and Shanghai accounted for a large share of imports although there is not much crushing capacity in those regions. Shanghai is the location of trading companies. Beijing companies COFCO, Chinatex, Sinograin are among the leading crushers that import soybeans for their facilities in coastal provinces from Liaoning to Guangxi. Sinograin is a major crusher and the manager of national grain and oilseed reserves. There is no indication of whether all the American soybeans were crushed or stored in government reserves. Beijing companies imported U.S. soybeans each month from February to December. The unit values of U.S. soybeans they imported were reported to be $17-27-per-ton less than Brazilian soybeans from September to December.

Overall, China appears to use about half of its crushing capacity. Agri.sci99.com reports that crushing capacity was 172.93 mmt at the end of 2019, about double the volume of soybeans imported and domestic soybeans crushed. Sci99.com said four new soybean crushing production lines were added in Sichuan and Liaoning Provinces last year. Crushing capacity has been growing at a slower pace than earlier in the decade, but imports have been flat, indicating a gradual decline in capacity utilization.
Dots indicate crushing capacity; bars show the volume of soybean imports.

Sunday, March 15, 2020

Chinese soybeans grown in Russia want subsidies

Distant observers presume that China can easily grow more soybeans in Russia to replace imported  American soybeans. On the ground there are a lot of obstacles to overcome, and Chinese farmers accustomed to pervasive subsidies at home are requesting financial aid and more efficient customs clearance to help them with their ventures in Russia. They also want relief from tariffs and taxes on imports designed to insulate domestic crops from imports.

The June 2019 "strategic partnership" agreement between Russia and China included a provision to promote production and trade in soybeans between companies in China's northeastern Provinces and Russia's Far East and Baikal Regions.

In July 2019, China's customs authority gave a "green light" by approving imports of soybeans from all parts of Russia. This was quickly followed up by a 4,400-metric-ton shipment of soybeans to the Jiangsu Province port of Nantong arranged by the two countries' agricultural behemoths, COFCO and Rusagro.

This blog first wrote about the topic in 2015 when imports from Russia first started to become significant. Customs data show imports of Russian soybeans for the October-September marketing year ratcheted up from just 15,000 metric tons in 2013/14 to 322,000 mt in 2014/15. Imports leapt to 756,000 mt in 2017/18 and dropped to 737,000 mt in 2018/19. Imports in October-December 2019 totaled 139,000 mt, up from 34,000 mt in the same period of 2018.

Chinese State media describe soybeans as a "test plot" for China-Russia agricultural cooperation. More than 70 companies from Heilongjiang Province already grow soybeans in Russia and there are eight foreign agricultural "industry parks" covering an area of 9 million mu (600,000 hectares), according to a report last year from China's Xinhua State media outlet. Dongjin Group--based in Heilongjiang's capital Harbin--was said to be planning a 1.4-billion-yuan ($200 million) investment in a 200,000-hectare "super modernized farm" in Russia's Far East. Other initiatives include the Huaxin China-Russia modern agricultural industry cooperation area and the Heihe Fengzhong Russia Amur agricultural industry park in Russian Far East, both of which are said to enjoy "favorable policies."

A March 2020 article appearing on a Chinese site for news about Russia notes that the cross-border soybean trade calls for subsidies to address a number of difficulties that still impede Chinese farms in Russia and transport of soybeans into the home market. The article says China's trade tensions with the United States prompted Russia to offer 1 million hectares of land and favorable financing for Chinese investors to grow and process soybeans. The article acknowledges that soybeans from Russia alone could not come close to filling China's 90-million-ton deficit.

The attributes of Russian soybeans appear to position them as competitors for domestic Chinese soybeans, not as replacements for beans imported from the Americas. The Russian soybeans are said to be non-GMO and high in protein, making them suitable for food products like tofu in the Chinese market. Their oil content is said to be about 3 percentage points lower than U.S. and Brazilian beans, making them less suitable for extracting cooking oil.

Costs of transporting soybeans and clearing customs are pressing concerns for the Chinese companies bringing them home from Russia. They travel 100-to-200 km on aging, winding roads from Russian fields to border crossings. Train cars are in tight supply, so most Russian soybeans are brought into China by truck. The transportation cost is reported to be 100 yuan (about $14-to-15) per metric ton.

Clearing customs and inspections at the border is a bottleneck. According to Russians, about 80 percent of the trucks at border crossings are Chinese. The Russian inspection stations at crossings in remote regions have few officials. Their strict inspections are said to take half an hour or longer.
Border crossings from Russia to China. Image from Google maps.

The article estimates that only 10-15 trucks are processed per day at the Tongjiang crossing over the Amur River. Tongjiang is one of the chief points of entry for Russian soybeans, handling 68,000-to-109,000 metric tons annually during November-April. Two years ago, Tongjiang officials on the Chinese side sent a letter to their Russian counterparts in the Jewish Autonomous Oblast Economic Bureau requesting faster customs clearance to address the "urgent need of enterprises." Two years later, this article says long lines and hours-long waits are common. It calls for upgrades of infrastructure and services at border crossings. The article also complains about "intangible costs" (bribes?).

A railroad bridge at Tongjiang is a flagship project signifying Russia-China cooperation that has been in the works for a decade. The bridge was half-completed for years as China promptly built three-fourths of the bridge from their side, but the Russians were delayed by squabbles over contractors, inflated costs, and a plunge in the value of the Russian currency. The two sides of the bridge were connected last year, but it is not quite complete. The Amur River is choked with ice during the long winter months when soybean freight peaks. The first highway bridge connecting Russia and China at Heihe was completed last year. (Iron ore and natural gas appear to be the main commodities targeted for trade on these routes.)
The Amur River is choked with ice at the Tongjiang border crossing. 
The road crossing on the Russian side appears uninhabited with small, twisty roads. 
The unfinished rail bridge is to the right. Image from Google maps.

State news media have reported for years on upgrades of customs clearance and inspection capabilities at these border crossings, but Chinese soybean importers still complain about lack of coordination between customs and foreign exchange bureaus on the China side. It sounds like customs officials have to send information on shipments to the foreign exchange bureau to release foreign currency to pay for the shipments, and this reporting system often breaks down. The article recommended improvements in data-sharing and electronic transmission of forms between customs, foreign exchange bureaus, banks, and commercial bureaus.

The local government of Tongjiang gives a subsidy of 20 yuan per metric ton of soybeans returned from Russia to help with the costs of transportation. However, Chinese soybean merchants say the subsidy needs to be higher to encourage enterprises to ship more soybeans.

The article also complains about lack of government support for Chinese farms in Russia. It complains that only high-profile projects like industrial parks and model companies (such as the super-farm project mentioned above?) receive support. Microenterprises and small businesses can't apply. The article complains that support is only piecemeal and ticks off a laundry list of activities that need government support: investment, financing, labor expenses, agricultural insurance, storage, processing, and distribution.

Soybean farmers are attracted to Russia by cheap land and lower expenses for some other items, but many have cash flow difficulties. Chinese farmers mostly have to self-finance input costs paid early in the growing season because production credit is not widely available. Some Russian banks will lend to Chinese farmers, but borrowers must supply Russian property as collateral and only 50-to-60 percent of the value is accepted as security for loans. Three-year loans have an interest rate of 17 percent and higher, about double the rate charged by Chinese banks, they say.

The article complains that taxes are too high. Imported Russian soybeans are charged the same 3-percent tariff as other soybeans, plus an "import tax" (probably referring to value added tax assessed on the gross value of imported soybeans) of about 10 percent. The article suggested preferential tax treatment for soybeans produced abroad by setting a lower rate, giving a tax rebate, discounting the value of bartered goods, or giving credit for labor, transportation or machinery expenses.

The article doesn't mention it, but the preponderance of Chinese farming ventures in Russia are run by companies or people associated with the system of State farms in Heilongjiang Province that were established as military outposts 60 years ago to populate borders threatened by Russian incursion. State Farm 209 is not far from Tongjiang, and villages in the area have names like "Victory," "Pioneer," and "East Wind." The Russian side of the border appears to be wilderness.

Long propped up with subsidies and bank credit, China is now trying to turn its State farms into money-making agribusinesses. They have also been tagged as models for overseas farming investment, but they often flounder when they venture abroad without the i.v. drip of state bank loans and help from friendly government officials.  (Beidahuang, the flagship company of the Heilongjiang State Farm system, had a high-profile venture to grow soybeans in South America a decade ago that quietly disintegrated.) It turns out that the Chinese agricultural model doesn't travel well.

The main threat of the soybean ventures appears to be incursions of Russian territory as China effectively colonizes its distant, empty Far East. But that's a story for another time.

Monday, March 9, 2020

Poultry Surge Eased China Feed Decline in 2019

The decline in China's animal feed output during 2019 was relatively modest in comparison with the plunge in pig numbers as a surge in poultry feed offset part of the decline.

Two out of three data sources say China's feed output dropped in 2019. China Feed Industry Association numbers say feed output fell 3.7 percent while the Alltech global feed survey estimates the decline at 10.6 percent. China's National Bureau of Statistics is the outlier with a 1.2-percent increase. The estimates covered a wide range of nearly 100 million metric tons between Alltech's estimate of 167.9 mmt and National Bureau of Statistics estimate of 261.8 mmt. Chinese feed statistics are more like impressionist paintings than engineering blueprints, so don't expect any precision from these numbers.

Measures of China's animal feed production, 2019
Source 2019 output Growth
MMT Percent
China Feed Industry Association 228.9 -3.7
China National Bureau of Statistics 261.8 1.2
All-Tech global feed survey 167.9 -10.6

The Feed Industry Association's decline in feed output is broadly consistent with trends in China's official meat production data. Feed output had been on the rise since 2016, despite stagnation of meat output. The 3.7-percent decline in feed output during 2019 was about a third of the 11.3-percent decrease in meat output last year.


Swine feed led the decline, with a 26.6-percent drop in feed output. Feed for piglets (-39.2 percent) and sows (-24.5 percent) fell faster than feed for fattening hogs (-15.9 percent). Feed for meat poultry grew 21 percent and meat poultry feed output of 84.65 million metric tons exceeded the output of swine feed (76.63 mmt) for the first time, as many Chinese farmers stocked their empty hog barns with ducks and chickens. Feed for layers grew 9.6 percent. Feed for ducks grew faster than feed for chickens. All together, poultry feed accounted for half of China's feed output last year, according to the feed industry association's numbers.

Feed for beef cattle grew extremely fast (32.5 percent), and feed for sheep also grew at a robust rate (7.8 percent). Feed for dairy cattle and aquaculture was relatively stagnant, with growth of less than 1 percent.

China industrial feed production, 2019
Type of livestock Production year-on-year change
Million
metric tons
Percent
All 228.85 -3.7
Hog 76.63 -26.6
  Fattening hogs -15.9
  Piglet -39.2
  Sow -24.5
Layer poultry 31.17 9.6
 Chicken 1.8
 Duck 27.2
Meat poultry 84.65 21.0
 Chicken 17.9
 Duck 25.2
Ruminant 11.09 9.0
 beef cattle 32.5
 dairy cattle 0.8
 sheep 7.8
Aquaculture 22.03 0.3
Other animal feed 2.42 29.5
Pet food 0.87 10.8
Source: China Feed Industry Information Net.

Changes in feed output exceeded changes in official estimates of animal protein output. The 26.6-percent decline in swine feed was faster than the 21.3-percent decline in pork output reported by official statistics for 2019. The increases in poultry feed also outpaced the increases in poultry meat and egg production. Beef output went up just 3.6 percent, much slower than its feed output. Sheep feed growth far exceeded the increase in mutton output. Aquaculture feed production and output of cultured fish/shellfish both point to stagnant production last year.


Wednesday, March 4, 2020

China's scramble for piglets inflates prices

With obscene profits to be made, China's swine farmers are scrambling to buy scarce piglets, driving their prices to crazy-high levels. Soaring piglet prices are the most obvious indicator of a ballooning cost structure that is likely to lock in ever-higher Chinese meat prices for the future.

While live hog prices have come down slightly in early March, the price of piglets is still rising. The Ministry of Agriculture's average wholesale price for a piglet in the last week of February 2020 was RMB 84.07/kg, up RMB 9/kg from the first week of January and RMB 60/kg higher than the price in February 2019. One article reports prices of RMB 1700-1800 for a 7-kg piglet. Another article reports prices of over RMB 2000 for 15-kg piglets and comments, "While you've been buying face masks, giant pig farms have been scrambling to buy pigs." Wens Company, China's largest swine producer, announced it will award managers a cash bounty for every piglet they buy through the end of 2020.
China Ministry of Agriculture weekly wholesale prices.

Crazy-high piglet prices are driven by a simple equation of tight supplies, fat profits from finished hogs, and companies eager to grab market share as the industry rebuilds after the 2018-19 African swine fever epidemic. Many farms sold most of their herd during the spring festival holiday. Restocking of farms has been delayed by the shortage of pigs and by disruptions of commerce and transport during the novel coronavirus epidemic. Disruptions are easing, but piglets are still scarce.

The Chinese swine industry--egged on by government officials desperate to maintain pork supplies--has taken shortcuts that will likely prolong the recovery and lock in low productivity and high prices for the long run. One commentator notes that the four-month increase in sow numbers reported by the Ministry of Agriculture last month was achieved by farms holding back female swine that had been intended for finishing barns to breed them as piglet-producing sows. One commentary estimated that 40 percent of piglets are being produced from these converted sows.

The shifting of pigs from "meat to breeding" yields a quick bump in inventory statistics and quick profits for farms, but it also dilutes the quality of the herd. In normal times, sows are bred carefully to increase litter size, improve maternal qualities, produce a large number of litters, and to turn out vigorous and muscular offspring. Commentators observe that these "third generation" animals intended as meat animals do not recover as rapidly after giving birth, and many farms are culling them after their second litter. This means more animals need to be held back as replacements, further constricting the supply of meat animals, increasing the cost of feeding and housing a larger proportion of sows, and prolonging the industry's recovery.

The drying-up of live pig imports over the last two years is another indicator of Chinese herd neglect. Chinese breeders normally bring in a small but steady stream of purebred animals purchased from breeders in North America and Europe to renew the nucleus herd of Durocs, Yorkshires, and Landrace pigs. These animals are bred and multiplied to become highly-productive commercial sows. Surges of pig imports have occurred after previous epidemics of PRRS and PEDv, but customs statistics indicate China's imports of live swine during 2019 were just $3 million, the lowest value in 15 years. Monthly data show that imports of live swine stopped after September 2018--except for a single shipment of Danish pigs in August 2019. The timing corresponds to the onset of ASF and trade tensions with the United States and Canada--the two main suppliers of China's live pigs in 2017 and 2018.

Source: China customs data.

The cost of piglets normally rises faster than the price of live hogs when the industry is in expansion mode, and their prices fall when the industry is in retrenchment. Over time, however, the price of piglets has been ratcheting upward and consuming a greater share of hog production costs, especially as the rise in feed and labor costs has been curbed since 2013.
Costs of "above-scale" farms reported by National Development and Reform Commission surveys.
Piglet prices rose to more than double live hog prices during periods of high demand during 2007-15, and they tended to settle at a ratio of 1.5 times hog prices in "normal times." Since 2017, piglet prices have risen to 1.5 times live hog prices during periods of peak expansion, while the "normal" ratio has ratcheted up to double the live hog price. In late February piglet prices per kilogram were 2.2 times live hog prices. The rise in piglet prices may reflect improvements in quality of the animals, but it probably also reflects a rising cost structure on the more sophisticated breeding and multiplier farms that are prevalent in China now and an inability to churn out piglets fast enough to keep up with the industry's demand.
Ratios calculated from Ministry of Agriculture wholesale prices.
There are no data on other pig farm costs, but they are probably escalating as well. Land is a frequently-cited barrier to the current swine industry recovery, and you can be sure local officials are extracting high rents from newly-built pig farms on rural collective land. Scarce laborers not keen on being confined to pig farms for weeks at a time are surely demanding higher wages from farm bosses. Truck drivers have been demanding higher rates during the coronavirus crisis--and there's a good chance those rates will not go back to their original level after the crisis passes. For now, swine farmers making huge margins may be willing to pay the higher costs, but those higher costs may become a new normal and lock in for the long term.

This boils down to lower productivity, a higher cost structure, and a ratcheting upward of pork prices for the long-term in China. Only large farms that can spread costs over large volumes will be able to survive when hog prices fall back toward normal levels. Watch out for griping about "unfair" competition from foreign pork and nontariff barriers when Chinese hog prices eventually start to drop.

Sunday, March 1, 2020

Puzzling Rice Policy Reversal

China announced an increase in its minimum price for indica rice and is encouraging production of the early-season rice crop that are reversals of recent rice policies. The early-rice directive is alternately viewed as a measure to stem the decline in rice output and as a countercyclical rural employment program for migrant workers trapped in their villages. This year's policy also includes an apparently symbolic upper limit on rice procurement that might be a gambit to bring the minimum price policy into compliance with WTO rules without making any material changes in the program.

A notice on this year's minimum prices for rice issued February 28 by the National Food and Strategic Reserves Administration announced minimum prices of 2420 yuan/metric ton for early indica rice, 2540 yuan/metric ton for middle and late indica rice, and 2600 yuan for japonica rice. The indica (long grain) minimum prices were raised by 20 yuan/mt from their 2019 values. These were the first increases in minimum prices since 2014. The japonica (medium grain) price was the same as last year.

China's minimum prices for rice, 2015-20
Year Early indica Middle-late indica Japonica
2015 2700 2760 3100
2016 2660 2760 3100
2017 2600 2720 3000
2018 2400 2520 2600
2019 2400 2520 2600
2020 2420 2540 2600

The announcement also introduced a 50-million-metric-ton upper limit on annual procurement of rice at minimum prices. Limits are 20 mmt of indica and 30 mmt of japonica rice. The first 45 mmt of procurement can be purchased from any of the eligible provinces, but the final 5 mmt will be allocated among provinces based on unspecified needs for procurement. The document did not specify whether the limit will be based on the calendar year or marketing year (fall rice procurement typically runs from October to February, overlapping calendar years).

The upper limit on rice procurement is unlikely to be binding since China has never procured 50 mmt of rice at minimum prices. The largest volume ever procured through the program was 40 mmt in 2013; only 15 mmt was procured during 2019. (A similar upper limit on procurement of wheat at minimum price that exceeds past procurement volumes was also introduced for 2020.) So why bother imposing this limit? The limit may be intended to bring China technically into compliance with WTO rules for domestic support. By introducing the limit, China might declare that only 50 mmt of rice is "eligible" to be purchased at minimum prices, a sleight of hand that could alter the arcane domestic support calculations in a way that reduces the value of price supports reported to the WTO without making any actual changes in the program.

Another reversal of recent rice policy was issued in a February 18 State Council statement that encouraged revival of double-cropping of rice. The statement was attributed to Premier Li Keqiang. Since the 1950s China has intermittently encouraged farmers to grow 2 crops of rice on the same land when grain supplies were tight--an early crop planted in the spring followed by a late crop harvested in the fall. The policy has been reversed several times during supply gluts. In the last few years officials had embraced the decline in double-cropping of rice because the early-season crop is shunned by consumers, requires a lot of labor and water, and is unprofitable for most farmers.

There are two competing interpretations of the double-cropped rice revival. An article on China Grain Net thinks the reversal was stimulated by alarm over statistics showing a 1.2-percent decline in rice output last year and a drop in area planted to less than 30 million hectares. Area planted in early rice dropped 7.1 percent and early rice output fell below 30 mmt for the first time since 2004. The anonymous author reports that production of the early-season rice crop plunged 40 percent or more in a county in Jiangxi Province where he/she conducted a survey last year, due to high costs, lack of labor, and clogged irrigation ditches.

A China BRICS analyst connects the resumption of double-cropping to the coronavirus crisis. He notes that China has no shortage of rice and speculates that the encouragement of early rice production is an employment policy meant to absorb the labor of migrant workers stuck in their home villages because they are unable to return to their jobs.

A February 25 directive issued by Xi Jinping to carry out spring planting and continue implementing rural policies during the coronavirus reiterated Li Keqiang's command to stabilize grain production and to restore double-cropped rice production.

Hunan Province's February 26 press conference on coronavirus prevention and control featured measures to "stabilize double-cropped rice" output by "struggling" to ensure that 10 million mu of land is devoted to concentrated production of early rice seedlings.

Wednesday, February 26, 2020

China Rice Procurement Ordered to Resume

Chinese officials have ordered state-owned companies to resume purchase of rice from farmers in northeastern provinces as they juggle the priorities of coronavirus prevention and forestalling a rice-marketing disaster.

Sinograin, the Chinese government's grain reserve corporation, says purchase of rice is about 20 days behind schedule in the northeastern provinces due to the coronavirus epidemic. Sinograin promises to place no limit on buying rice that meets quality standards. Sinograin's Heilongjiang branch says it has opened 12 purchasing points, and others have been directed to reopen soon. The risk of unsold rice molding and sprouting rises as the weather warms, and farmers need cash to plant new crops in the spring.

China's National Administration of Grain and Commodity Reserves issued a notice yesterday extending the season for purchasing rice at minimum prices in northeastern provinces to March 31, 2020 to ensure farmers are able to sell the crop they harvested last fall. The circular directs Sinograin to play its leading role as the main buyer of rice at minimum prices, improve services to farmers, and ensure there are plenty of purchasing points for rice. The document is also addressed to other state-owned companies who are instructed to act as models in buying rice: COFCO; Supply and Marketing Cooperatives; Dabeihuang and the Heilongjiang State Farm Bureau; and Sinochem, the state-owned chemical and seed giant.

The circular orders provincial and local government officials to take their provincial food security responsibility seriously while also carrying out their coronavirus prevention duties. They are commanded to launch purchases of grain for provincial and local reserves and to stick to the bottom line of ensuring that "farmers who plant grain can sell it." Local authorities are instructed to "support and guide" enterprises to buy grain. Grain must be added to the list of necessities tagged by the State Council for resuming business and production during the coronavirus crisis.

Sinograin says it has launched services to help farmers sell their grain more conveniently and to avoid waiting in long lines of trucks at warehouses. These include sales arrangements between villages and warehouses, a cellphone app farmers can use to make an appointment at the warehouse, and T.V. announcements and text messages that publicize locations of warehouses. A Wechat promo distributes standards for rice color, smell, and brokens to farmers to help them avoid wasted trips hauling rice that fails to meet quality standards. Grain depots have waiting rooms, cafeterias, and offices. Facilities check the temperature of visitors and workers, require masks, and are disinfected (probably to ease farmers' fears of infection from visiting the grain depot).

Neither the notice nor the Sinograin publicity mention that parts of Heilongjiang had an unusually poor-quality rice crop this year, and the region's rice market seized up as local mills purchased cheaper rice from southern provinces.

Sunday, February 23, 2020

Rebound in Pork Supply Interrupted by Coronavirus

China's swine industry is rebuilding after losing a large chunk of its herd to an African swine fever (ASF) during 2018-19, according to a Chinese Agriculture Ministry official's report last week. However, supplies are tight and prices are record-high as many villagers cannot market their hogs and only a few slaughterhouses are in operation.

The communist party's "Number one document" made swine industry recovery a major rural policy task for 2020 by issuing a directive to "accelerate recovery of hog production, ensure hog production capacity is basically restored to the previous normal level by the end of 2020." In last week's briefing on the topic, Yang Zhenhai, director of the livestock industry and veterinary bureau, reported that market incentives and policy aid have stimulated a steady recovery, and the industry is making progress in meeting the document's objective.

Yang said the inventory of productive sows in 400 counties rose 1.2 percent in January 2020, the fourth monthly increase in a row. Yang said sow numbers have increased 8 percent since October. You'll have to take his word for it, because the Ministry has not issued any monthly reports on sow and hog inventories since October 2019, the first gap in these reports since they were first issued in 2009.
China's ag ministry claims the sow inventory is rebounding following more than a year of steep declines, 
but the Ministry has stopped issuing statistical reports since October 2019.

In September-October 2019, the Ministry's reports said sow numbers had shrunk about 40 percent from the same period in 2018. Yang did not provide a year-on-year comparison of sow numbers for January 2020, but he said 7 provinces now have more sows than a year ago. Four of those were provinces in the northeast (Liaoning, Heilongjiang, Jilin, Inner Mongolia) where the African swine fever virus made its first appearance in China and decimated herds in the fall of 2018. The other 3 were minor pork-producing provinces Shaanxi, Gansu and Ningxia. Yang said sow numbers had increased for 8 months in Liaoning (where the first cases were reported 17 months ago), 6 months in Hebei, Shanxi and Heilongjiang, and 5 months in Henan.

Yang emphasized that the sow inventory held by "above scale" farms slaughtering 500 head or more increased 2.2 percent in January. These farms have seen five months of increasing sow numbers, and their growth exceeds the national average. He said 500-head and larger farms account for half of slaughtered hogs and are the main force in the recovery of pork supply.

Mr. Yang acknowledged that land and credit are still problems blocking pig farm expansion in some localities. He noted that pork supplies have been constrained by coronavirus quarantines and lockdowns that have disrupted transportation of feed and breeding pigs and prevented farms from supplying hogs to slaughterhouses.

According to another set of reports, the number of hogs slaughtered rebounded in December and was up 3.9 percent in January. The number of hogs slaughtered during the Chinese new year holiday was more than 40 percent less than last year's number.



The number of carcasses arriving at the Xinfadi wholesale market in Beijing increased to over 2000 per day during the weeks leading up to the holiday, but the number plunged to under 1000 per day over the past week, an unusually low number.

Xinfadi's latest report says pork supplies are tight and prices are high because many slaughterhouses are still not operating due to lack of workers. Some employees have not returned from the holiday and those that have returned are under quarantine. The Beijing market gets most of its hog carcasses from northeastern provinces where only 11 slaughterhouses are operating. Only 7 facilities are operating in Liaoning, and just 2 each in Heilongjiang and Inner Mongolia. These facilities supply the northeastern market, Beijing, and some cities in central and eastern China, Xinfadi said.

According to Xinfadi, only large-scale farms are able to deliver finished hogs. Family farms cannot market hogs because trucks cannot enter villages still under lockdown to prevent spread of the coronavirus. Purchase of hogs has been further constrained by snowfall across much of northern China last week. Xinfadi says demand for pork has also been curbed by high prices. Its early February report noted that restaurants were closed due to virus fears, further reducing demand.

With tight supplies, prices of pork, hogs, and feeder pigs continued to rise in February, according to wholesale prices reported by the agriculture ministry. The increases were counter to the usual pattern of declining prices after the Chinese new year holiday.
Average wholesale prices reported by China's Ministry of Agriculture and Rural Affairs.


Tuesday, February 18, 2020

Tough Year for China's Rice Farmers

China's rice market is in for a very tough year, a "Three Rurals Filling Station" (or "Go Rural") reporter warned this week. The journalist was alarmed to learn from chats and phone calls with rice growers in Heilongjiang Province that sales of the northeastern province's rice has stalled due to a perfect storm of a poor quality crop, a delayed government purchase program, the coronavirus quarantine, and unusual weather.

The reporter learned that the virus has spread quickly in Heilongjiang, villages are prohibiting movement of people, and some are using drones to monitor comings and goings. Rice marketing is nearly halted with the absence of traders and trucks. The reporter worried that rice still held by farmers may deteriorate, lose its flavor, and become moldy if held too long. This could result in unsold crops and plunging income, the reporter warned.

Heilongjiang Province issued an emergency notice on rice procurement in December 2019 when sales were proceeding at a little more than half the pace of the previous year. The provincial grain bureau said the action plan was needed due to lower-than-usual rice quality in some parts of the province and concern that large-scale farmers would be unable to sell their rice. Officials were ordered to fan out into villages, assess provincial grain output, arrange for farmers to sell grade-3 or higher rice to processors or government reserves, and help farmers improve the quality of grade-4 rice. The program also ordered detailed statistical reporting but no public reports on Heilongjiang grain marketing appear to have been issued since the program started. National figures indicate that japonica rice procurement stagnated in mid-January. The emergency program was due to end in February but a recent announcement indicates it will be extended.

A report in early January said the initial results of the action plan were disappointing. The report said new rice had "no price advantage," government reserves had little room for more rice, many processors in Heilongjiang had stopped buying local rice, and some were buying significant volumes of japonica rice from southern provinces like Jiangsu. Similarly, the "Three Rurals Filling Station" reporter heard that very little rice was being sold outside the province. This is unusual because Heilongjiang is the largest producer of japonica rice and normally ships its surplus rice to the rest of the country.

The explanation for the perverse flows of japonica rice from south to northeast is likely China's price support program. Heilongjiang and other northeastern provinces have a support price for japonica rice, but southern provinces like Jiangsu and Anhui do not. The chart below illustrates that rice prices largely follow the support price. Officials cut the support price in 2017 and 2018 to deal with massive surpluses. In 2019 the market price in Anhui province dropped about 7 percent below the support price in Heilongjiang. Prices were similarly low in Jiangsu Province and Shanghai, making it impossible for rice mills to sell their products at a competitive price and resulting in the freeze-up of rice markets in Heilongjiang. Similar perverse effects have happened to soybeans, corn, cotton, and rapeseed when those commodities were marketed with support prices in select regions in past years.
Prices from China National Grain and Oils Information Center.
Officials usually announce the coming year's minimum price for rice in February. Officials have announced that the program will continue this year, and a terse report attributed to China Central TV indicates that the minimum price will be kept stable in 2020 or possibly raised. The announcement also reversed recent years' policy by suggesting that farmers return to growing two crops of indica (long grain) rice annually in regions where appropriate--chiefly southern provinces like Hunan and Jiangxi. This is puzzling since prices are falling, supply exceeds demand, and there is little demand for the early rice crop. The minimum price clearly props up the price of early rice, as shown in the chart below.
Prices from China National Grain and Oils Information Center.

The "Three Rural Filling Station" reporter noted that supply and demand estimates indicate that China produces a surplus of 10 million metric tons of rice annually. The reporter estimated that the reserve of rice purchased at minimum prices has already swelled to 150 mmt and clearing out inventories is the "main theme." With such a large surplus, the reporter warns readers to expect weak rice prices.

Finally, the reporter admonished farmers to jettison "traditional thinking." The reporter suggested that farmers stop relying on government warehouses to buy rice, stop waiting for traders to knock on their door, and stop forming price expectations by comparing with neighbors. Instead, farmers should be more proactive and pay attention to analyses in news media and other outlets.

Unlike propaganda trumpeting recovery of production and abundant food, the "Three Rurals Filling Station" report is not widely posted. It only appears to be posted on two news aggregator sites.


Wednesday, February 12, 2020

China's Rural Employment Dropped 9.4 Million in 2019

China's rural employment dropped by 9.43 million and urban employment grew by 8.28 million in 2019 as the country continued its transformation from rural to urban according to data reported by the National Bureau of Statistics last week. The number of Chinese people employed in the countryside has fallen 158 million over twenty years, according to data reported by the Bureau. The proportion of workers in the countryside fell from 70 percent in 1999 to 43 percent in 2019. The report noted that overall employment has been declining the last two years along with shrinkage of the working-age population ages 16-64 years old.

China's unemployment rate fluctuated between 5.0 and 5.3 percent during 2019, the Bureau said. Unemployment was lowest in Q2 2019, peaked at 5.3% in February and July, fell to 5.1% in October-November and edged up to 5.2 percent in December 2019. The report said job opportunities are plentiful.

China: Urban Employment Growth and Rural Decline, 2019
Employment, 2019
Change
Million
Total
774.71
-1.15
Urban
442.47
8.28
Rural
332.24
-9.43
Source: China National Bureau of Statistics.

A report on population by the same National Bureau of Statistics analyst said China's population surpassed 1.4 billion at the end of 2019 and the urban share of the population reached 60.6 percent. The rural population fell by 12.39 million and the urban population rose by 17.06 million during 2019. Chinese officials are fond of proclaiming their concern for "1 billion peasants," but the rural population was only 551 million at the end of 2019. The rural population has fallen by nearly 269 million over the last 20 years. The rural share of the population has fallen from 65 percent in 1999 to 39.4 percent in 2019.

Source: China National Bureau of Statistics.

Employment concerns were reflected in paragraph 18 of the "Number one document" issued last week which called for "stabilizing rural migrant employment." The document recommended subsidizing companies to keep workers on their payrolls; creating rural construction and other jobs through government investment; boosting rural service jobs in food service, nursing homes, hospitals, and e-commerce; and creating public-sector jobs in villages for plumbers, street cleaners, and guards for roads and forests. The document called for clearing up unpaid wages for migrants and recommended putting deadbeat employers on a black list. The paragraph on village conflict resolution exhorted officials to clear up disputes over unpaid migrant worker wages and to prevent disputes from being taken to higher levels of government. The document said laid-off rural migrants should be able to collect unemployment insurance benefits in their home village. The unemployment insurance burden on companies should be lightened to encourage them to take on more workers, the document said.

Monday, February 10, 2020

Don't Delay Spring Planting; Wear Masks

In a "letter to farmer friends" Chinese agricultural officials exhorted farmers to go into fields to prepare for spring planting while taking care to wear masks, wash hands, and avoiding congregating in groups. A circular issued by the Ministry today gave similar instructions, warning village officials not to demand unauthorized transport permits or to block roads without approval from county or higher governments in order to ensure that seeds and inputs needed for spring planting can reach villages.

While wary of the risk of coronavirus spreading through the countryside, officials are also worried that delayed preparations for spring cultivation could result in a lost harvest. The letter issued by the National Agricultural Technology Extension Service Center advised farmers, "We cannot let up on prevention," but "spring cultivation cannot be delayed." "Fields need attention--don't lose a moment, don't lose a year," the notice intoned.

Farmers were advised to prepare to fertilize and apply pesticides to winter wheat and rapeseed and to give attention to vegetable fields, fruit orchards, and tea plantations. The letter and notice warned to be on alert for fungal diseases affecting wheat and rapeseed and outbreaks of fall army worm this spring. Officials called for farmers to switch from chemical to organic fertilizers and utilize disease and pest-prevention teams to increase efficiency of pesticide applications and avoid large numbers of farmers going into fields to spray crops.

Officials urged farmers to buy seeds from legal shops in clearly-labeled packages and to obtain proof of purchase. The notice called for cracking down on fake seeds and inputs. Seed, fertilizer, and other agricultural enterprises are to be added to the list of companies that should restart normal business operations as soon as possible.

The circular also called for organizing ad hoc teams of villagers and returned migrants to do farm work. The circular advised family farms, cooperatives, and other businesses to cooperate and exchange labor to address the labor shortage facing vegetable farms.

The "letter to farmer friends" closed by reminding farmers to wear masks when leaving home, wash hands when returning, and to avoid congregating in groups while in fields. The circular ordered local officials to ensure that farms and workers go into the fields in an orderly manner at separate times and divide work.

Sunday, February 9, 2020

China Struggles to Keep Food System Running

China is struggling to keep its food system running while controlling movements of people and vehicles to check the spread of the novel coronavirus.

Egg producers in Hubei province have been the focus of news media attention. On February 1, Hubei's animal husbandry association told Caixin news that disruptions of feed supplies and transport of eggs had been eased after the province issued a circular that called for allowing trucks carrying agricultural products and daily necessities to travel highways freely when showing their "green channel" permit.

An emergency notice calling for maintaining normal production and supplies of livestock products was issued February 3 by the Ministry of Agriculture and Rural Affairs. In order to maintain operations of livestock farms and supply food to consumers, the circular ordered officials to allow passage of trucks carrying:
  1. chicks, piglets, and breeding animals
  2. animal feeds and raw materials
  3. livestock products such as meat, milk, and eggs
The notice also ordered officials not to close slaughterhouses and to support reopening of processing plants as soon as possible. Officials were ordered not to close down roads and to "troubleshoot" village transportation lockdowns and other road closures.

The Grain and Commodity Reserves Administration announced a dozen examples of companies supplying food and plentiful grain reserves to bolster public confidence in the food supply.

The general manager of an egg company in Hubei told a China Times reporter that his trucks still had difficulty delivering eggs to customers in Shanghai, Hangzhou, and Guangzhou last week. According to the egg boss, trucks with Hubei license plates are immediately viewed with suspicion by officials in other provinces, and some roads are closed. Officials in Hangzhou wouldn't let a delivery truck pass until the driver showed them the Ministry of Agriculture circular. After unloading, some trucks had trouble getting back to Hubei because they couldn't prove the empty trucks carried farm products. They tried unloading only half the truck's eggs so they could prove they were hauling "green channel" produce on their way back. Six of the egg-truck drivers have been quarantined for 14 days while delivering eggs, and drivers are now demanding double their usual payment to compensate for the risk of being quarantined. Consumers refuse to buy eggs that come from Hubei, and some trucks have been sent back. Officials at a market in Guangzhou ordered traders not to receive trucks or shipments from Hubei. Some farmers in Hubei, desperate to sell their eggs to generate cash to buy feed and chicks, have offered to sell their eggs at a discount but the egg company has purchased exclusively from farms that are long-term suppliers.

Corn prices in China are rising as transportation is disrupted. Some warehouses in northeastern provinces buying corn from farmers reportedly had all of it purchased immediately by livestock farmers. Auctions of corn reserves are being held to prevent companies from running out of raw materials. During February 7-11, authorities plan to auction 2.96 million metric tons of corn held in reserves since 2016 in 15 provinces. The Feb. 7 auctions sold 1.07 mmt to 308 feed companies.

As the spring planting season approaches, farmers may have difficulty buying inputs and large-scale farms are unable to get laborers to help prepare fields.

Saturday, February 1, 2020

Officials Wary of Food Supply Crisis Amid Epidemic

Chinese officials are working to avert a food supply crisis in the midst of the coronavirus epidemic that has closed down transportation, kept workers at home, and idled production plants. News media have been ordered to report plentiful food reserves and normal functioning of markets to head off panic-buying.

The country's Administration for Food and Commodity Reserves held a January 30 video conference emphasizing the urgency of food-supply and price-stabilization as "the most urgent political tasks." Leaders instructed provincial and city officials to:
  • release reserves of grain as needed and to inject rice, flour, and cooking oil into city markets to prevent shortages, panic-buying, or spikes in prices
  • set up emergency food supply programs
  • monitor and report supplies and prices on a daily basis 
  • resume food production at "backbone" rice, flour, and edible oil processing companies 
  • move food into cities to prevent shortages, panic-buying and price spikes. 
  • use news media propaganda to "stabilize market expectations" 
Officials were told that Xi Jinping had held many meetings on the coronavirus epidemic and had issued many important directives on prevention and control (no mention of Premier Li Keqiang who was made point man on the coronavirus according to reporting from some news media last week). The officials were told that this is the most critical and urgent time for both disease prevention and food market stabilization. Communist party members and leaders were exhorted to play their role as "pioneer models," be disciplined, pragmatic, work hard, and be a good example. Officials were ordered to prevent grain that fails to meet food safety standards from entering the market, an oblique acknowledgment that government reserves hold large quantities of grain contaminated with heavy metals and mold.

The same day as the videoconference, official news outlet Xinhua issued an article assuring the public that China's grain reserves are plentiful, cities have reserves of rice, flour and cooking oil to alleviate any shortage, and there's no reason to panic. The food reserve bureau's deputy director assured readers that the country had capacity to process 1.5 million metric tons of rice, 800,000 metric tons of wheat, and 700,000 metric tons of edible oils daily, and the governor's grain responsibility system ensures adequate supplies to each locality.

According to Xinhua, State-owned COFCO is among 20 companies and units that can supply Wuhan--the coronavirus epicenter--with 200 metric tons of rice, about 50 tons or flour and 300 mt of cooking oils daily. A subsidiary, COFCO Biotech, is supplying 365 tons of alcohol for medical use to the cities of Shenzhen, Suihua, Zhaodong, and other cities. COFCO Biotech will also supply 922 tons of fuel ethanol to Wuhan, Xiaogan, and Huangshi cities in Hubei Province, Xinhua said.

Provincial and city news outlets dutifully issued stories about plentiful reserves, calm markets, and processing plants gearing up operations. A local news media outlet in Shaoxing--a city in eastern China's Zhejiang Province--reported that there had been incidents of panic-buying of rice and instant noodles at local supermarkets last week. Shaoxing Daily assured readers that there was no reason to panic since the local development and reform commission said reserves were adequate and had strengthened daily monitoring of food markets. The reporter's visits to supermarkets, wet markets and wholesale markets showed calm, orderly operations and stable prices. According to Shaoxing Daily, the local government has 4000 metric tons of rice reserves, 131 emergency sales outlets, and 19 processing plants with 1,760 metric tons of daily processing capacity.

The Xinhua outlet in Nanning, capital of Guangxi Province, showed videos of supermarket with shelves full of vegetables, fish, pork, and jugs of cooking oil. The camera lingered on sale price tags of RMB 4.99 per 500g for cucumbers and RMB 55 for a 5-liter jug of cooking oil but panned quickly across the meat counter where small tags indicated high prices of RMB 46-71 per kg. for various cuts of pork. A customer remarked prices were the same as usual. A supermarket worker said there was no reason to worry since the store receives multiple deliveries of vegetables and three pig carcasses daily, and never runs out of chicken, duck, or fish. A Wal-mart employee in Nanning told Xinhua the store hopes to fulfill its customers needs and showed bags of vegetables and a full shopping cart. Wal-mart's pork prices were RMB 35-45 per kg. The video also showed a poster in illustrating sanitation procedures, emphasized that the Wal-mart store is disinfected daily, and showed customers having their temperatures taken at the store's entrance. Customers and workers were wearing masks.

Before the coronavirus epidemic struck, pork supplies were the priority concern for Chinese authorities after an African swine fever epidemic decimated pork supplies in the second half of the year. In August 2019, Vice Premier Hu Chunhua proclaimed stabilization of pork supplies as an important political task, prioritized ensuring pork supplies during this month's spring festival and upcoming political meetings in March, and called for "guidance of public opinion." Guangxi Province planned to sell 1900 metric tons of frozen pork from reserves during the January holiday at a price of about RMB 32 per kg.

Thursday, January 30, 2020

Coronavirus quarantine blocks feed to poultry farms

Poultry farmers in China's Hubei Province claim they are running out of feed due to transport restrictions imposed to prevent the spread of coronavirus. Hubei Province, the epicenter of China's coronavirus epidemic, is under strict quarantine. On January 28, 2020, the Hubei Province poultry farming association issued an emergency appeal to the national feed industry association requesting 18,000 metric tons of corn and 12,000 metric tons of soybean meal--a 10-day supply--to aid the survival of poultry producers. According to the letter, most of the province's "scale" poultry farms are running out of grain due to public health emergency measures that include road closures and limits on transportation to control the spread of the coronavirus. The letter said farms are facing irreparable economic losses and asked that feed companies with production capacity and transportation channels sell the feed ingredients at recent market prices and deliver the feed to Hubei.

It is unclear how companies responding to the appeal would be able to deliver the feed if roads are closed. Hubei normally raises more pigs than poultry, so it's unclear how pig farms are feeding their animals...unless the number of pigs has been decimated by last year's African Swine Fever epidemic.

Saturday, January 25, 2020

Grain Bureau Secrecy Earns Recognition

China's Grain Reserve Bureau was recognized for its "secrecy work" by the State Secrets bureau, a reminder that China's promises of "openness" and free-flow of information are still constrained by an Orwellian bureaucracy that outsiders never see.

The Administration of Food and Commodity Reserves announced on its web site that it had been designated an "advanced collective in National secrecy work," by the National Administration of State Secrets Protection. The award given in January 2019 is a recognition of the bureau's work in maintaining secrecy that is given out only once every five years. The reserves administration is responsible for overseeing the procurement, storage and distribution of government grain and cotton reserves.
In a training class held in 2019, local grain reserve officials are reminded that
the communist party dictates what information should be kept secret.
Photo from Ningxia Autonomous Region administration of grain and commodity reserves.

The grain reserve bureau's secrecy work was described as a matter of national food security and business reform. The bureau's director general, acting in his role as chairman of the bureau's "secrecy committee," issued many directives related to secrecy, heard reports, and dealt with many secrecy problems in a timely manner, according to the bureau's announcement.

"Secrecy is no small matter" was one of the instructions given to grain officials at Tianjin municipality's grain bureau attending a training session given by the director of the local State Secrets Bureau in November 2018. A similar training for grain officials in Ningxia Autonomous Region in July 2019 had a theme of "support party management of secrets, strictly handle secrets according to law." Secrecy bureau directors at both trainings advised officials of the "grim situation" facing secrecy work in the "new era."

Secrecy training is linked to a government information disclosure initiative launched by Premier Li Keqiang in 2016 that allows public requests for information similar to the U.S. "Freedom of Information Act," but secrets remain. The grain reserve bureau's web site includes regulations for setting up a secrecy review system. staffed by personnel whose chief qualification is "political quality."

For example, the State Administration of Grain and Commodity Reserves conducted a national audit of publicly-held grain reserves last year, but never released any concrete information on the amount of grain or its condition. The program for carrying out the audit included instructions to keep secret grain testing results, prevent information leaks, and to choose secrecy personnel based primarily on their "political quality."
Broken bags of aging rice in a government reserve warehouse photographed by official news media in 2017. Original source: China News Net, photo obtained from microblog.

Monday, January 20, 2020

China Grain Reserves Bulge With Weak Market

Chinese officials stockpiled more grain during 2019 to shore up sagging prices as a slow market undermined plans to jettison the stockpiles. With warehouses already bulging, it will be challenging for China to buy more American grain this year to meet its "Phase One" purchase commitment.

Chinese state news media boasted that price support policies for wheat and rice raised Chinese farmers' income by 10 billion yuan (about $1.4 billion) in 2019. The news item claimed that programs to purchase wheat and rice at minimum prices have put money in farmers' pockets by preventing farm gate prices from falling below minimum levels set by the government.

Rice and wheat stocks are at record levels and corn stocks are still "abundant" (despite a massive 3-year de-stocking program), according to a January 15 Ministry of Agriculture and Rural Affairs press conference.

Grain prices are down, despite stockpiling efforts. The Ag Ministry said grain prices in December 2019 (peak season for sales of fall-harvested grain) were down from last year. Farm prices for indica rice were down 6.3 percent from a year earlier, japonica rice prices were down 7.7 percent, and corn prices in production regions were down 2.8 percent from a year earlier. Wholesale prices for common wheat were down 4.4 percent and quality wheat prices were down 6.5 percent.

This month the National Grain and Commodity Reserves Administration also reported declines in farm gate prices for wheat (-3.1 percent), corn (-2.3 percent), japonica rice (-3.6 percent), and indica rice (-.7 percent in the two biggest producing provinces), but they were smaller than those reported by the Ag Ministry. Soybean prices were up, despite an 18-percent increase in output. (Domestic soybeans are used predominantly for high-protein food products and may be benefiting as substitutes for expensive meat.)

China farm procurement prices January 2019-2020
Commodity Location Jan 14 2019 Jan 13 2020 Change
Yuan/metric ton Percent
Wheat National 2395 2320 -3.1
Indica rice National 2525 2516 -0.4
Jiangxi 2495 2478 -0.7
Hunan 26152598 -0.7
Hubei 2491 2513 0.9
Guangdong 3521 3240 -8.0
Japonica rice National 2699 2601 -3.6
Heilongjiang 2646 2599 -1.8
Anhui 2604 2593 -0.4
Corn National 1801 1760 -2.3
Heilongjiang 1649 1638 -0.7
Jilin 1722 1711 -0.6
Shandong 1950 1931 -1.0
Henan 1857 1843 -0.8
Soybeans National 3428 3566 4.0
Heilongjiang 3425 3552 3.7
Henan 3620 4440 22.7
Source: China Administration of Food and Commodity Reserves.

With last year's grain shopping spree, de-stocking of government grain reserves slowed during 2019. The weak market appears to have undermined efforts to "optimize" stockpiles and make price support programs more market-oriented that were ordered by the "Document No. 1" issued by communist officials at the beginning of 2019. Support price programs were activated later than usual this year to give more time for private sector entities to purchase grain, but the degree of market intervention was nevertheless heavy. Price-support purchases of wheat accounted for 31 percent of all wheat procured in the six major wheat-growing provinces. A disastrous japonica rice crop and retreat of private buyers from the market in Heilongjiang prompted the provincial government to issue emergency notices to boost purchases from farmers in December, but overflowing storage bins, the short time before the holiday season, and snowfall disruptions limited the implementation of the action plan.

During 2019, officials purchased 22.27 million metric tons (mmt) of wheat and 15.2 mmt of rice at minimum prices. The combined 37.5-mmt purchases of wheat and rice were 41-percent larger than in 2018. The bigger government purchases reflect big harvests in 2019, weak demand, and downward pressure on prices in 2019. The grain goes into government warehouses where it is held until it can be sold when prices are more favorable, but few sales are made and grain has been accumulating for years.

Only 2.6 mmt of wheat held in reserves was auctioned off in 2019. That implies the stocks of wheat held in reserves increased by 19.7 mmt during 2019. One online report estimates that "policy-type" wheat reserves reached a record high of 93 mmt at the end of 2019 after dipping briefly during 2018. The stockpile of wheat reserves accumulated from market intervention is estimated to have doubled since 2015.

Auctions sold 12.6 mmt of old rice reserves during 2019, 4.05 mmt more than was sold in 2018. About half of the sales were japonica rice (6.255 mmt). Middle-late indica rice (4.88 mmt) and early indica rice (1.47 mmt) sales were nearly double those of the previous year. Nevertheless, the 12.6-mmt auction sales of old rice were less than the 15.2-mmt of purchases of new rice to prop up this year's prices, implying a 2.6-mmt net increase in policy-type rice reserves during 2019.

The formal price support for corn was suspended in 2016 when the stockpile swelled to 250 mmt or more. The 3-year disgorgement of corn stockpiles was slowed by the weak 2019 market as corn output rebounded by 3.6 mmt and demand was reduced by African swine fever and tepid starch production. Sales of corn stockpiles totaled 56 mmt in 2017 and 101 mmt in 2018, before decelerating to 22 mmt in 2019, according to data from Sinograin, the state-owned company that manages government reserves.

The slow-down in de-stocking appears to be the main impact of African swine fever on the corn market. The government is willing to keep holding the corn to prevent an even steeper fall in prices. The Ministry of Agriculture and Rural Affairs' top market analyst estimates that China's consumption of corn exceeds its production by 25 mmt, but in his judgment current corn supplies are adequate due to availability of stocks.