Sunday, July 25, 2021

Prices Crash With Chinese Swine Rebound

Chinese hog prices have now fallen to their level of two years ago. After about 14 months at stubbornly high levels, pork prices are down more than half from their year-ago level, and officials are scrambling to mop up excess supplies. Officials worry that losses will lead to more gyrations in supply.
Average wholesale prices reported by China Ministry of Agriculture and Rural Affairs.

The swine inventory at the end of Q2 2021 was at its highest level in the last five years, according to data released by China's National Bureau of Statistics. 
Calculated from China National Bureau of Statistics reports.

The increase in the swine inventory during Q2 is remarkable given that the statistics bureau also reported a surge in hog slaughter during Q2--usually the off-season for hog slaughter in China. The surge of slaughter is consistent with monthly slaughter data reported by the Ministry of Agriculture and Rural Affairs which indicated 22 million head were slaughtered at "above-scale" plants in June--an unusually large number for the summer months. 
Data from China National Bureau of Statistics.

Ministry of Agriculture and Rural Affairs.

Analysts say the downward tumble in hog prices and aggressive slaughter in recent months reinforced one another. High prices in early 2021 encouraged farmers to stock up on hogs, with many even buying up mature hogs and fattening them to even larger weights. As prices began to dive after the February holiday, farmers began to panic and sell off animals. The panic-selling of excessively fat hogs peaked in June, with prices dipping briefly under 14 yuan per kg. before mysteriously bouncing back literally overnight.

Back in August 2019, Vice Premier Hu Chunhua ordered local officials to make restoration of pork supplies an important "political task," ordered officials to conduct secret surveys and ordered news media to guide public opinion. Ministry of Agriculture inventory numbers stopped after October 2019, and have only been intermittently reported in news conferences to show the recovery was going "faster than expected." 

Quarterly sow inventories reported by China's National Bureau of Statistics since 2020 indicate steady recovery. The number of sows grew 10 million from June 2020 to June 2021. The current inventory exceeds the sow inventory reported at the end of 2017.
Ministry of Ag inventories calculated from percent changes--not reported after Oct 2019.
Others gathered from National Bureau of Statistics reports.

The rebound in pork supply seems to be real, but the arithmetic of the recovery implies magical productivity growth in sows. According to the National Bureau of Statistics, China had 36 million sows in June 2020. According to the Bureau, those sows produced enough pigs to slaughter 613 million head AND expand the inventory to by 100 million head over the past year. 

That's a total of 713 million head produced from 36 million sows, equal to nearly 20 surviving pigs per sow, or 2 litters of 10 surviving piglets in a year. As this blog pointed out three months ago, China's pre-ASF sow productivity was about 16 pigs per sow. China's 20 pigs per sow during 2020-21 is a 25-percent increase in productivity and nearly matches U.S. sow productivity over the same period. 

A recent analysis showed that U.S. pigs per litter have increased at a rate of about 1 pig per 10 years. If we assume 2 litters per year, China's productivity improvement in one year equals 20 years of progress in the U.S. 

Such a surge in productivity is implausible. It's true China now has many technically proficient farms able to achieve high productivity. But the ag ministry says 43 percent of hogs are raised by farms producing less than 500 head. The lack of breeding stock, continued disease pressure, and cold weather were not favorable for raising productivity during the last 12 months. We know Chinese swine farms--even the large companies--have been using low-productivity sows meant for the fattening herd to speed up the recovery. Last month a veterinary official acknowledged that farmers had been using low-productivity sows, and urged farmers to cull them as a cost-cutting measure. Last week, speaking at a Ministry of Agriculture news conference the same official acknowledged that piglet survival rates had been low during the winter months due to extremely cold weather.

If Chinese farms had maintained their pre-ASF 16 pigs-per-sow productivity level (a generous assumption), the 36 million sows on hand in June 2020 would have produced 576 million surviving pigs over the past 12 months. If enough pigs were held back to boost the inventory by 100 million head--as the statistics bureau reports--only 476 million would have been available for slaughter. They could not have produced 613 million slaughtered hogs at the historic productivity rate.

The recovery of pig numbers seems to be corroborated by feed production data. The China Feed Industry Association reports that swine feed production during January-June 2021 was up 71 percent from the same period in 2020. Scattered reports of pork sales indicate year-on-year increases of 35-40 percent.
Monthly data from China Feed Industry Association.

Exactly how big the rebound in pig production was will remain a mystery. We have learned that growth in the Chinese pork industry is constrained by inelastic consumer demand and rising production costs. The steep drop in pork prices suggests Chinese consumers figured out how to get by on less pork over the last two years of high prices. 

And it's an industry with a rising cost structure. With hog prices about the same as three years ago, swine farmers are incurring deep financial losses. The Ministry of Agriculture and Rural Affairs' swine data portal says "above scale" hog farms were losing 158 yuan per head in May. A June report from Shandong Province said farrow-to-finish farms were losing 340 yuan per head and feeder-to-finish farms were losing 1400 yuan.

Thursday, July 22, 2021

Floods, pests, disease, drought pose risks for China's big harvest

Epic flooding, drought, hungry caterpillars, and stubborn African swine fever have Chinese officials scrambling to shore up the fall grain harvest--just two months away.

Torrential rains and catastrophic floods in Henan Province this week are the latest and most-publicized of a series of mid-summer extreme weather events that have affected most of China's major agricultural regions in 2021. 

On July 21, Xi Jinping issued "important directives" to prevent casualties and property damage from the serious flooding in Henan. Noting that rivers are above their normal levels, dams are vulnerable, some trains have been stopped and flights have been canceled, the flood control situation was pronounced to be very severe. Soldiers were ordered to help with rescue and aid, and authorities were instructed to provide ample warning of heavy rain, typhoons, mountain torrents, and mudslides. 

Flooding in Jiangxi Province.

In June, Yicai reported that there was widespread flooding in Inner Mongolia and farms had been flooded when one reservoir breached its banks. Youtube videos show at least two modest-sized reservoirs in Inner Mongolia bursting. Some rivers Heilongjiang in the northeastern part of the country were also flooding, according to Yicai, and there were also concerns about flooding in western and northern parts of the Pearl River basin. Yicai insists there is no reason to worry about abnormal weather happening simultaneously with droughts in the western United States and Brazil because China produced record amounts of grain the last two years.

On July 12--before the Henan storms--China's Ministries of agriculture, water resources, emergency management and weather bureau discussed a 100-day fall harvest action plan for the key July-September months to address:

  • summer drought in the northeast 
  • Yellow River flooding
  • high temperatures and typhoons in the mid- and lower reaches of the Yangtze River
  • controlling the spread of fall army worms 
  • controlling rice pests

The disaster mitigation program is aimed at achieving the national 650-million-metric-ton grain harvest target. A circular describing the program was released July 20 (the document itself does not seem to be publicly available) calling for each department and local government to take steps to prevent and mitigate disasters as the agricultural sector faces risks from abnormal weather. The program calls for issuing weather reports, early warnings, drilling emergency wells, building drainage facilities, shoring up reservoirs, refining emergency plans, issuing aid and materials, preventing pest and disease outbreaks after floods recede, and assigning technicians and experts to advise particular provinces and districts. 

Henan Province rainfall map, July 19-20, 2021

On July 15-16, Minister of Agriculture Tang Renjian inspected disaster prevention and mitigation work in Shandong Province, another grain producing region hit by horrendous storms June 15-16. Tang sounded the same themes about ensuring a big fall harvest, weather forecasting and pest control. Tang inspected a "high-standard field" project and checked the status of corn stalks. Tang was said to be "very concerned about pest prevention," saw observation lights meant to detect army worms and learned about bug specimen collection.

June flooding in Shandong Province

On July 20--the same day as the storm(?)--the Ministry of Agriculture and Rural Affairs held a meeting of officials from nine provinces to discuss control of fall army worms--ravenous caterpillars--in the Yellow River region. The officials are charged with holding losses of corn in the region to no more than 3 percent this year and preventing the caterpillars from spreading beyond the Great Wall into the main corn-producing regions of the northeastern provinces.

The African Swine Fever (ASF) situation was acknowledged as grim and a "heavy task" at a July 20 Ministry of Ag news conference on the state of the agricultural economy. The official recited the tiny number of ASF outbreaks reported by the Ministry to demonstrate improvement since 2019, but he acknowledged that the virus is established in the country, that contamination is geographically widespread and has been found in each link of the supply chain, and described the virus as "stubborn." He acknowledged that there have been new strains lately with less severe symptoms, and a long incubation period makes the virus difficult to detect. He worried that infections from abroad are a risk due to the country's long border. The official admitted that animal disease prevention and quarantine doesn't operate well--with many grassroots veterinary organizations having unpaid bills--raising the risk of recurrence of the disease. The official warned local officials not to slack off or be careless in animal disease prevention efforts. 

Farmers in Sichuan Province try to rescue corn from flooding last year.

At the July 20 news conference, another official insisted that China had an excellent summer harvest of grain--reversing several years of decline in wheat area and improving the quality wheat area to 37 percent. In response to a question about mold and fungus on wheat due to summer rains, she asserted that only 0.3 percent of the wheat had problems and she suggested the bad wheat could be fed to animals. 

While the wheat in Henan--the biggest wheat-producing province--was already harvested before this week's torrential rains, one might wonder how wheat held in storage might be prevented from molding when most of the province is flooded and humid. 

Thursday, July 8, 2021

Feed Booming, China Loosens up on Corn Imports

The latest data indicate China's demand for animal feed has kicked it up a notch this year.  With tight corn supplies, Chinese authorities are loosening the longstanding quota stranglehold on corn imports by allowing imports in "bonded zones" and turning to the international market to restock reserves. 

May 2021 data from China's feed industry association suggest that the country's feed production has vaulted to a new level. China's feed production in the first five months of 2021 totaled 114 million metric tons, 21.5 percent ahead of last year. Monthly feed output is running 4-to-5 mmt ahead of same-month totals from each of the previous three years.
Source: analysis of China feed industry association data. 

The association says January-May 2021 swine feed production is up 75 percent from the same period last year. Jan-May swine feed output is also 10 mmt higher than the same period in 2018--before the African swine fever epidemic began. Poultry feed production surged during the ASF epidemic as many farmers filled their empty pig barns with chickens and ducks. With this year's swine rebound, January-May poultry feed output is down 6 percent from last year, but poultry feed is still 10-mmt ahead of its 2018 January-May total. 
Source: analysis of China feed industry association data.
The feed industry association reported that swine and poultry feed prices were up 14-to-17 percent from a year earlier. A June tour of Shandong Province--one of China's two biggest feed-manufacturing provinces--found that corn prices have started falling. The tour reported that feed mills were using minimal amounts of domestic corn. Instead, they were using domestic wheat, brown rice, and corn meal from imported corn ground up by new processing plants in tax-free bonded zones. Poultry feed was the predominant product, while swine feed sales plummeted due to disease in April and May. 

The Shandong feed mills reported using large amounts of corn meal from bonded zones in coastal cities. One manager said 27 new mills had been proposed in Shandong and 22 were approved. 

A May article in State media about a Qingdao bonded zone said the zone had one corn processor operating with three more scheduled to open soon. The zone offers preferential policies such as bonded warehouses and exemption from import quotas. Customs officials said the zones alleviate tight grain supplies by expediting imports but they also emphasized the importance of strict monitoring of processors to prevent unprocessed grain from entering the market. The processing plant manager apologized for not knowing all the rules.

Corn processors appear to be popping up in bonded zones all over the country. A company affiliated with Thai-based CP group claims to have six corn processing facilities in ports like Lianyungang in Jiangsu and Rizhao in Shandong as well as inland locations like Yueyang in Hunan Province.

Chinese authorities describe bonded zones as an initiative to streamline the import process and to give inland regions better access to imported corn. One customs article celebrated arrival of the first shipment of Ukrainian corn at a zone in Jiangxi Province's Ganzhou. A company spokesman said he planned to import 15,000 mt of corn from Ukraine.
A container of Ukrainian corn arriving at a Jiangxi bonded zone is decorated with a banner proclaiming it as an initiative to promote trade with "One Belt, One Road" countries.

Gansu Daily described a 700-mt shipment of Ukrainian corn that was expedited through customs clearance in a bonded zone at the Qinzhou port in Guangxi and then shipped by rail to a feed mill located in a "designated supervision site for imported grain" in Lanzhou. The feed mill reportedly supplies feed to meet vibrant demand in five northwestern provinces. 

According some reports, Chinese authorities cracked down on abuse of corn import quota exemptions by companies operating in bonded zones during May. One processor in a Shandong zone was closed. It was believed that canceled orders of U.S. corn would not exceed 1 mmt. 

Another topic of discussion in the Chinese industry is a new 5-year value added tax (VAT) exemption for grains, oilseeds, and edible oils imported for storage in government reserves. The exemption is in effect for 2021-2026 and replaces a similar 5-year exemption that expired this year. The new exemption has slightly looser reporting requirements, a 2-month longer effective period, and the exemption appears to apply only to VAT (not tariffs), but commentators seem to think the exemption covers all tariffs and taxes.

One online analysis observed that corn imports had already exceeded the annual tariff rate quota in the first five months of 2021. Noting that there is no official data on how much is imported by the government's reserve management company Sinograin, the author surmised that most of the 11.7-mmt corn imported was composed of tax-exempt shipments destined for reserves.

An online Grain and Oils News essay last week refuted worries that the exemption announced in May was "bad news" that exposed the Chinese corn market to downward pressure from international prices. The author argued that imported grain would remain in reserves with no impact on the market until it is auctioned. This author also speculated about how much imported corn is being stored in reserves, concluding it could be no more than 20 mmt this year.

Wednesday, June 30, 2021

New Farm Subsidies Reflect China's Farm Worries

Chinese leaders announced new farm subsidies this month that reflect worries about shrinking profits for scaled-up grain farms and farmer cooperatives. With costs escalating year by year, officials worry that newly-minted commercial farmers may abandon their land if grain prices fail to keep rising. 

Premier Li Keqiang squatted in a corn field for a photo-op with local officials and farmers
 to announce a new one-time grain subsidy for 2021.

In a carefully orchestrated visit to Jilin Province on June 15-16, 2021 Premier Li was photographed in a corn field where farmers assured him that another bumper harvest is expected this year. However, the farmers also complained that they were worried that increasing prices of fertilizer, fuel and other inputs will eat up profits from record-high corn prices. 

According to Xinhua News Agency propagandists, Premier Li turned to comrades in his delegation and pronounced, "This is a key period for grain production; we must adopt effective measures to stabilize agricultural input prices. We must have reasonable prices for agricultural products."

(Li's photo-op in Jilin where corn had already been planted was probably aimed at motivating farmers in provinces like Shandong, Henan, and Anhui to plant a summer corn crop in fields where they have just harvested winter wheat this month.)

Back in Beijing on June 18, Li Keqiang chaired a meeting of the State Council's standing committee  that announced 20 billion yuan (about $3 billion) in one-time subsidies for "farmers who actually plant grain" to offset rising farm input costs. The committee also pledged to expand pilot crop insurance programs that indemnify the full cost of grain production and insure against income fluctuations for grain farmers. No details or specific plans were provided.

On June 25, the Ministry of Agriculture and Rural Affairs (MARA) held a meeting to discuss implementation of the subsidies, demonstrating the communist party leadership's concern for the farmer masses. MARA has been ordered to work with the finance ministry and other departments, put procedures in place and deliver the subsidies as soon as possible.

On June 30, the Ministry of Finance announced that the 20 billion yuan one-time subsidy would be added to the 120.485 billion yuan budgeted for this year's farmland fertility protection subsidy--representing a 16-percent increase--in order to offset increased costs of farm inputs. 

(This is not the first time China has given subsidies to offset rising input costs. In 2006, a general input subsidy was launched to compensate farmers for rising fuel and fertilizer prices. That subsidy ballooned from 12 billion yuan in 2006 to 107.8 billion yuan in 2012-15. In 2016 that input subsidy and an 11.5-billion yuan grain subsidy were rolled into the farmland fertility protection subsidy.)

National Bureau of Statistics price data appear to confirm that prices of nitrogen fertilizer, fuel, and pesticide have increased in 2021. Nitrogen fertilizer prices were up about 25 percent from last year in the spring planting months and they had risen another 25 percent by June. Compound fertilizer (NPK) is up only 11 percent from last year. Diesel fuel prices have risen, but they have recovered from depressed levels during last year's pandemic. Pesticide prices have more than doubled from last year. No discussions of the issue in Chinese news media have cited such price data. 

Indexes calculated from China National Bureau of Statistics raw material purchase prices.

The chart below illustrates Chinese officials' worries about vanishing farm profits. Official corn production cost data shows that corn prices mostly stayed ahead of production costs from 2000 to 2013 before plateauing and dropping sharply in 2016--below production costs--when China abandoned a corn price support policy. Rumors about farmers abandoning their rented land began to circulate as corn prices plummeted in 2016. The surge in corn prices during 2020 appears to have been a welcome return to profitability. However, profits for this year's crop could evaporate if corn prices dip by the 2021 fall harvest and costs rise. That could undermine the expected rebound in China's corn production in 2022. More broadly, rising costs that wipe out profits for scaled-up farmers or other types of grain producers with big investments in land rent, equipment, and inputs may send them scurrying for the exits. Raising grain prices even higher could cause problems by prompting even greater imports and boosting costs for struggling livestock farmers. 

China National Development and Reform Commission production cost survey;
data for 2020 and 2021 are estimates based on market prices.

A May 28 article--over 2 weeks ahead of Premier Li's visit to Jilin--in Business Reference News set up the propaganda theme by describing frustrations of operators of several scaled-up grain farms and cooperatives in Heilongjiang and Hunan Provinces. These "new-type farmers" operating hundreds or thousands of acres are being counted on by Chinese officials to be the vanguard in achieving greater productivity and "modern agriculture." While grain prices are relatively high, the farmers complained that profits are being squeezed by rising prices of inputs, land rents, and labor. Rice farmers in Hunan claimed to make no profit from growing rice--they earn all their profit from raising shrimp in their rice paddies. 

The farmers complained to Business Reference News that subsidies actually contribute to the increase in production costs. So-called new-type farmers rent dozens of plots from village collectives, leaving them vulnerable to rising rents. When more grain subsidies are given out, the village collectives demand that the scaled-up farmers pay higher rents. Thus, rising rents eat up much of the benefits from subsidies to grain producers. 

News media always describe the one-time subsidy as a payment for "farmers that actually grow grain." This addresses a concern voiced in the Business Reference News article: large-scale farmers complained that subsidies were often paid to the villagers who "own" the land, not to the farmers who actually cultivate it. The Finance Ministry said the new subsidy would be distributed to farmers who actually grow grain by using existing subsidy data, insurance records, large-scale farmers' own information and other data compiled with advanced information technology. 

The distribution of existing subsidies is a months-long process of reporting villagers' land holdings up the administrative chain and sending money to farmers' bank accounts. The land fertility subsidy is supposed to be distributed by June 30; Heilongjiang farmers are supposed to get corn payments by September. The administrative task of counting actual plantings will be even more challenging, and the potential for fraud is multiplied when farms plant grain on a large scale in fields located in multiple villages. 

Weak ability of farms to bear risk is another theme hammered in recent subsidy propaganda. Business Reference News cited impacts of last year's typhoons and drought on Heilongjiang corn producers and flooding on southern rice producers as examples. The article cites a "Green Book" issued by the Chinese Academy of Social Sciences last year that predicts increasing incidence of flooding, forest fires, drought, and "political frictions" due to climate change. 

According to Business Reference News, farmers are frustrated with crop insurance programs that only cover a small portion of production costs, have complex and "unscientific" claims processing. "Full cost insurance" pilots indemnify farmers for the costs of land, labor as well as purchased inputs. An income insurance pilot is said to stabilize corn farmers' income. These insurance programs have been in the planning and pilot stage for about a decade. MARA has been ordered to expand them to 500 major grain-producing counties this year and to all counties in 13 major grain producing provinces next year.

China's farm subsidy boost is a sign of weakness, not strength. Officials didn't anticipate that a transition to commercial farms that pay market prices for inputs and factors of production would result in an ever-rising cost base. Various subsidies and price supports have proven to be ineffective, a lot more expensive than expected, contentious, and fraught with unanticipated consequences. 

Saturday, June 12, 2021

Sprawling 5 Year Plan for Xinjiang

China's 14th five-year plan for Xinjiang Uighur Autonomous Region envisions great opportunities for development and westward-facing trade in the region--and the plan makes it clear that it has Xi Jinping's personal stamp of approval. The plan promises huge material economic progress, and it includes measures to ensure it is not impeded by social instability or threats to the communist party's leadership. The plan calls for expanding vocational training schools, reeducating ethnic minorities, and creating Islam with Chinese characteristics. 

The Xinjiang plan is an exhausting catalogue of projects that goes on for pages and pages. They include high-tech industry clusters; petroleum- and coal-based chemicals; steel and nonferrous metals; upgrades of textiles and agricultural processing; new energy and e-commerce; industrial clusters and industry parks sprinkled across the desert; new roads, rails and canals crisscrossing the region; hordes of tourists; build new cities and schools; and a reformed string of army-run "production corps" settlements that "maintain border stability." This plan--like others published this year--reveals obsessions with "security," resistance to risks, industry "agglomeration," "clusters," "supply chains" and "industry chains." 

Development of Xinjiang is a strategy for shifting the momentum of development westward--the plan describes it as "a national chess move for the new era." Chinese planners view Xinjiang as a westward-facing conduit for trade with Central, South, and West Asia. The plan describes Xinjiang as a core region in the "silk road economic belt," a "highly open border region" and a corridor for trade with the central and eastern regions of China. 

The importance of Xinjiang development is reflected by promises of policy support and the plan's advocacy of the "Xinjiang aid counterpart" initiative which presses government organizations and state-owned companies to provide various kinds of support, open branches, offer technical assistance and travel to Xinjiang. 

In agriculture, cotton is Xinjiang's most prominent crop--the region produced 87 percent of China's cotton last year. However, the region's priority is to keep cotton output steady and focus on maintaining a slight surplus in the region's wheat production.

The plan calls for upgrading cotton quality, concentrating cotton production in the best-suited areas, building big contiguous cotton fields with roads and irrigation, increasing uptake of improved cotton strains to 98 percent by the end of the plan, and increasing mechanization of cotton production to 80 percent.

Xinjiang's cotton is about 2,500 miles away from most of the textile industry (which requires a  transportation subsidy not mentioned in the document) so the plan calls for bringing the textile industry to the cotton. Xinjiang will boost the local yarn-spinning and dyeing industries as well as a labor-intensive industry development plan that includes garment manufacturing. Textile industry plans emphasize production of synthetic fiber--presumably linked to the petrochemical industry plans for Xinjiang. 

The plan targets tree fruit and nuts for expansion, including red dates, walnuts, almonds (巴旦木 in Chinese…it’s a long story), grapes, apples, pears, apricots, new plums, and medlars. Agricultural processing industry is another target industry for creating jobs and adding value to local crops. The plan includes instructions to improve the quality of the naan (flat bread) industry, tree fruit, wine, tomato processing, dairy, horses, herbal medicines, chilled aquatic products (in the desert?!) and regional specialties like camel milk and buckthorn. 

The plan includes a fleeting endorsement of an ongoing initiative to artificially alter the weather (which has alarmed some of China's neighbors).

Livestock will also be boosted in Xinjiang. Beef, sheep and dairy are mentioned first, but pork is also targeted for development (in a purportedly Muslim "autonomous region"). In a seemingly "back to the future" recommendation, Xinjiang will promote "courtyard vegetable production" to increase the supply of vegetables. Other crops mentioned are oilseeds and sugar beets. 

The Xinjiang Production Corps is an archipelago of military settlements and farms strung across the region. The corps is involved in many industries, but it has a significant role in mechanizing cotton production and increasing use of improved varieties. The plan's paragraph on the corps doesn't mention cotton or textiles. The plan says we should "view the army as a game of chess" and calls the corps "...a stabilizer for border security, a melting pot that gathers people of all ethnic groups, and a demonstration area for advanced productivity and culture." 

Agricultural and sideline product processing and export-oriented industrial clusters are planned for four locations. Textile and garment import-export processing, export processing districts, border trade and western-oriented opening industry bases will be created in Xinjiang. An International Textile Product Garment Trade Center is planned for the capital, Urumqi. Other export-oriented industries planned include electronics assembly, Chinese herbal medicine, shoes and hats, toys, wigs, bags, and leather goods. 

The plan will continue the ethnic employment strategies that have prompted foreigners to ban Xinjiang goods. A paragraph on vocational training and employment targets "surplus workers in rural and urban areas" and poor people. The plan includes an initiative to train 200,000 people for technical jobs in construction over 3 years and to achieve a goal of increasing urban employment by 450,000 per year. Another initiative is a "dynamic reset" for urban households with zero-employment. The plan calls for enrolling all junior high school graduates in vocational education. Another paragraph calls for construction of high quality vocational training schools in counties and cities with relatively large populations, and programs to improve quality of teachers. 

Although it's a plan for the "Uighur Autonomous Region," the "Uighur" ethnic group is never mentioned in the 50-page document except in the title. The phrase "Chinese nationality" (中华民族) appears 14 times and "unity" (团结) appears 34 times. According to the plan's prologue, Xinjiang has laid a foundation for development by strengthening "...each ethnic group’s sense of gain, happiness, security...[with] social stability and people living and working in peace and contentment." Yet the plan intones that the region must "persist in maintaining social stability as an overriding political task."

The plan promises to protect freedom of religion, upgrade places of worship and support religious schools. But religion must follow Chinese law, and "infiltration" and "crime" will not be tolerated. The plan requires "Sinification of Islam." Clerics who collaborate ("patriotic religious figures") are promised rewards if they educate religious believers in national, civic and legal awareness and "play a role in critical situations." The plan promises to crack down on religious extremists and continue to deepen de-radicalization. Socialist adaptation for religious people must be improved.

Elsewhere the plan calls for better propaganda education of the masses to unify the people. In education, historical facts and archaeological objects are to be "used effectively" to convince students that members of all ethnic groups that happen to live within the boundaries of communist China have a "common history." 

The plan is rounded out by demanding stronger communist party leadership, an unrivaled leadership role for party committees, party leaders as role models, and grass roots party organizations as "citadels in battle."

Thursday, June 10, 2021

Heilongjiang Farmers Get Grain Subsidies a Month Early

China's Heilongjiang Province announced that grain subsidies will be paid a month earlier than usual this year. Producer subsidies for corn, soybeans, and rice will be issued to Heilongjiang farmers by the end of August based on area they planted in the three crops. 

Heilongjiang accounts for about 10 percent of China's grain output, and it produces the biggest surplus of grain to supply to other provinces. The producer subsidy policy is meant to encourage Heilongjiang farmers to produce by offsetting the province's low prices to generate better net returns.

The amount of the subsidies will not be determined until August, but officials indicated the corn subsidy will be raised from last year while the soybean subsidy will be held steady. Last year's corn subsidy was 38 yuan per mu, and the soybean subsidy was set at 238 yuan per mu to stimulate more soybean production. This year the priority has switched to boosting corn output, with corn prices soaring and record corn imports. Last year's rice subsidy was 136 yuan per mu for rice grown with surface water and 86 yuan per mu for rice irrigated with groundwater.

Heilongjiang farmers will report area actually planted in the crops last year (in 2020), so this year's payments will not reflect changes in this year's crop planting. Farmers are believed to be  planting about 4-5 percent more corn this year in response to the boom in corn prices. Government officials will verify the planting reports by July 20, determine the amount of the subsidy by August 15, and make payments by August 30. 

Farmers can't get subsidies for land reclaimed without authorization, and they can't double-dip by collecting subsidies for land for which they're receiving subsidies for growing corn for silage or land idled by the "grain for green" environmental program. 

The terms  are set by a Heilongjiang 2020-2022 corn and soybean producer subsidy work program and a similar Heilongjiang work program for rice producer subsidies.

Wednesday, June 9, 2021

China ag inflation? Oink...gurgle

Stratospheric Chinese hog prices helped float prices of feeds and meat upward last year, but sinking hog prices this year may be exerting a downward gravitational pull on other prices as hog farmers fall underwater.

Hog prices reported by China's National Bureau of Statistics (NBS) in May 2021 were more than 50 percent below their early January level and are now below breakeven levels for wean-finish farms and at or near the breakeven point for farrow-finish farms in China. Farmers have been selling hogs in a panic as prices fall in the offseason for Chinese pork consumption. Last week's Beijing Xinfadi wholesale market report said mainly large carcasses are arriving--super-sized "second-time fattening" hogs--but very small carcasses are also arriving as farmers slaughter immature animals to cut their losses. Another industry report commented that a fattened hog brought 3000 yuan in profit last year, but now loses 1000 yuan. 

Source: China National Bureau of Statistics, raw material purchase prices.

High hog prices and generous subsidies during 2020 spurred aggressive hog farm expansion, feverish entry, and an erosion of productivity. Feed prices were driven higher, and production costs soared. The price of substitutes for pork--from tofu to beef--were also driven higher. 

The NBS purchasing price data indicate that upward momentum has dissipated for ag prices in China since hog prices began their decline. Prices of corn, soybean meal, and cotton are well above year-earlier price levels--when China was exiting its covid-19 lockdown--but ag prices appear to have peaked during January-March and show little or no upward momentum in May 2021.

Source: China National Bureau of Statistics, raw material purchase prices.

Ministry of Agriculture wholesale price data show beef prices started to slide over the last couple of months. Chicken prices peaked briefly in late 2019 (when pork prices were at their peak) and have fluctuated relatively little over the past year.  
Source: China Ministry of Agriculture and Rural Affairs, wholesale prices.

China's inflationary momentum has shifted to industrial commodities. Year-on-year rises in industrial prices are exaggerated by "base effects" (i.e., industrial prices were depressed a year ago during March-May 2020). Prices of copper, steel rebar, aluminum, and pvc have been on the rise this year, but prices seemed to peak in May as these prices also downshifted late in the month. 

Source: China National Bureau of Statistics, raw material purchase prices.

Chinese analysts think hog prices may bottom out by July-August after the stock of super-size pigs has been cleared out. A diarrhea epidemic that killed off piglets in February may tighten the supply of fattened hogs by late summer, just when seasonal demand starts to rebound. 

Today Chinese officials trotted out recycled plans to stabilize the pork industry by improving the national buffer stock of frozen pork reserves. Twelve years ago an elaborate "hog price alert" stabilization plan was introduced by the same government departments following a disease-driven 2007-08 spike in hog prices. The 2009 plan was supposed to do all the things the same officials are promising today: publish a dozen or so statistical indicators to give farmers more accurate market expectations, issue "early warnings", and trigger government purchases and sales based on the hog-corn price ratio to tamp down gyrations in sow numbers and smooth price fluctuations. Nearly all of the promised data series quickly vanished. The Ministry of Agriculture recently mentioned that it plans to abandon the hog-corn price ratio as a profitability measure.

Why isn't the government swooping in now to buy up the surplus pork? Maybe because analysts estimate that 1.7 million metric tons of import frozen pork are already held in reserves. The commercial value of these reserves has sunk along with market prices. The freezers may already be jammed full of pork. Assuming reserves were purchased on credit officials are surely financially underwater on the reserves they bought last year and unable to finance new purchases to sop up the excess pork in the domestic market now.