Grain and Oils News quoted a rapeseed farmer in China's Hubei Province who said, "At this price, I won't plant rapeseed next year. Wheat has a support price and earns a higher return, so I'll plant wheat." This farmer's comment encapsulates the unanticipated consequences of setting an attractive price for wheat while all other prices are collapsing in a weak Chinese economy.
On October 10, Chinese officials announced that next year's minimum price for wheat will be held steady at this year's level of 118 yuan per 50 kg. According to Futures Daily, the government announced the unchanged price for next year in order to bolster confidence among farmers who were considering abandoning wheat due to declining prices. Many in the industry were expecting a cut in next year's wheat price because Chinese wheat prices started falling in October after the conclusion of the 2015 minimum-price purchasing program.
The announcement eight months ahead of the wheat harvest is likely to result in prices that are out of sync with prices in other countries and with prices of other Chinese commodities next year. The 2016 minimum price is equal to about $368 per metric ton. According to U.S. Wheat Associates, forward prices at U.S. Gulf ports for May 2016 are in the range of $220 to $272 per metric ton.
Chinese authorities try to insulate their wheat market from fluctuations in world prices by restricting wheat imports. In fact, Chinese wheat prices are remarkably stable. However, weak demand in China's slowing economy is putting downward pressure on all prices. Moreover, officials are unable to control prices of related commodities that are exposed to global price fluctuations, either because the commodities themselves are imported (soybeans, rapeseed, cotton), substitutes for them can be imported (corn), or the prices of final products like starch and pork are under pressure. Chinese farm commodity prices and their final products are plunging across the board, which will create imbalances against the high wheat price during the coming year.
The strong wheat price will induce farmers to produce more of the grain as prices of other crops collapse.
Rapeseed is a crop that competes with wheat for farmland. Both crops are grown over the winter and harvested in the summer. Wheat's main region is in the drier, cooler north China plain, and rapeseed is predominant in the more humid, warmer central provinces along the Yangtze River, but both crops can be grown in much of the rapeseed region. (Rapeseed subsidies were were not permitted in counties where wheat could also be grown when the subsidies were introduced in 2007.)
China supported rapeseed prices from 2009 to 2014 using a "temporary reserve," but this year the support price for rapeseed was abandoned after the government accumulated excessive stockpiles of cooking oil made from the rapeseed. In Hubei Province, the rapeseed price dropped from 2.5 yuan per 500g to 1.7 yuan after the program was eliminated in July. The labor-intensity of rapeseed planting, harvesting, drying, and threshing is a deterrent to growing it. With prices crashing, many rapeseed farmers are expected to switch to wheat this year. The guaranteed minimum price for wheat will attract marginal land that was previously planted in rapeseed in hot, humid, less-than-ideal climates for wheat, creating a glut of low-quality wheat. In fact, it is in this region where there have been problems with sprouted and moldy wheat over the last several years.
Cotton is another labor-intensive crop that farmers are abandoning after the Chinese government gave up trying to support its price. With cotton prices plunging, farmers are also switching from cotton to wheat.
The high wheat price will also undermine the already-weak demand for wheat. The government can artificially inflate the cost of wheat for flour mills by dictating a minimum price, but the mills cannot pass on the higher cost by raising product prices. China's National Bureau of Statistics has reported virtually no change in flour prices since February of this year.
Flour mills have little control over the price of wheat bran--the major by-product of milling wheat which is a major ingredient in pig feed. The income from sales of bran is a significant contributor to the bottom line for flour mills. When mills pay high wheat prices, bran prices do not rise in proportion. Feed ingredient prices are generally falling, and feed mills readily substitute other materials for bran--such as imported barley--that are cheaper. Flour mills in China are already being hit by shrinking income from bran, and this will worsen as wheat prices are pulled further out of alignment with prices of other feed materials.
In major producing areas of the north China plain, feed mills use the entire wheat kernel in animal feed when it is cheaper than corn. Normally, Chinese corn and wheat prices are similar, but this month corn prices have fallen about 30 percent below the wheat price. With corn so cheap, farmers are less likely to use wheat for animal feed. Instead, they will be more inclined to sell this feed-quality (i.e., low quality) wheat to the government reserve rather than to feed mills.
All this adds up to a likely glut of Chinese wheat in 2016. With prices of other farm prices, fertilizer and fuel collapsing, the steady wheat price will attract more production of wheat next year. The high price will choke off consumption of wheat. The government will have to buy the surplus, and its wheat reserves will explode. And most of the reserves will be poor-quality wheat that other buyers don't want. The problem of unsaleable wheat was already a serious concern during the 2015 marketing season and will become worse in 2016.
The Chinese strategy of maintaining steady prices for wheat and rice while decontrolling other commodity prices is doomed to fail. Chinese policies have already created a massive--and growing--surplus of corn that mirrors a massive--and also growing--deficit of soybean imports. Now, a similar policy that favors wheat is causing the collapse of rapeseed and cotton production in the north-central region to make way for excess production of wheat. Chinese officials want to blame these perverse imbalances on bogeymen like multinational grain companies, foreign subsidies, and GMOs, but these imbalances are made in China.
The Futures Daily article reported that some Chinese market analysts were skeptical of the wheat price announcement. While the announcement of a steady wheat price had temporarily allayed fears of decline in wheat prices, it could not revive the weak demand for wheat nor could it relieve downward pressure on prices of wheat and corn.
The painful lesson for China is that you can't give the market a "decisive role" in some parts of the economy while dictating prices in other parts of the economy where the market's decisions are viewed as unacceptable.
Saturday, October 31, 2015
Wednesday, October 28, 2015
China DDGS Antidumping Rumored
There are rumors that China's Ministry of Commerce is mulling an antidumping investigation to slow imports of U.S. Distillers Dried Grains with Solubles (DDGS).
On October 27, 2015, China's Farmers Daily published a collection of articles from a "corn industry alert" meeting held by the Ministry of Agriculture's Information Center on October 9 where industry representatives discussed how to deal with problems of soaring corn stockpiles, declining prices, weak demand and pressure from imported corn substitutes. Two of the articles called for limits on DDGS imports to help the domestic ethanol industry return to profitability.
DDGS is the by-product of manufacturing ethanol from corn. China also has manufacturers of ethanol for fuel, beverage and industrial uses who rely on selling distillers grain by-products for a significant portion of their revenue. Domestic DDGS prices have tumbled by half or more over the past year. One price report today says DDGS produced in Jilin Province today is selling for just 1070-1120 yuan per metric ton. Imported DDGS is selling at 1470 yuan/mt at the Qingdao port and 1540 yuan/mt at Tianjin, nearly 1000 yuan less than a year ago.
Zhang Guohong, an author of one of the Farmers Daily articles and an official from China's alcohol industry association, complained that declining prices of imported DDGS have put pressure on Chinese distillers grains prices. Normally, Zhang said, the DDGS price is comparable to or higher than the price of corn, but now DDGS is 600 yuan (roughly 20%) less than the price of corn. This inflicts severe losses on the Chinese alcohol manufacturers, reducing the industry's demand for corn, in turn contributing to the build-up of corn inventories in China. Zhang demanded that the government somehow control imports of American DDGS by raising the tariff, setting an import quota, or strengthening inspection and testing for genetically modified strains of corn in the DDGS.
A second author writing in Farmers Daily, Feng Lichen--a corn industry analyst, estimated that giving tax breaks and subsidies to the fuel ethanol industry could use up 30 million metric tons of China's record-high corn stocks. He then noted that imports of substitutes for corn--sorghum, barley, wheat, DDGS, and cassava--displaced domestic corn, forcing the government to put 26 mmt of domestic corn into reserves. Feng urged the government to adopt stronger inspection and quarantine measures to control imports "without violating WTO principles." (Such a move would actually be a gross violation of WTO principles.)
The Chinafeedonline web site reported the rumor that alcohol distillers in China are requesting an antidumping investigation to protect their profitability. According to Chinafeedonline, industry officials became concerned when DDGS imports surged to 1.1 million metric tons during July 2015 after the row over an unapproved genetically modified corn strain was cleared up early in the year. Imports remained robust during the third quarter and Chinafeedonline estimates that imports are three times the domestic DDGS supply. According to Chinafeedonline, alcohol industry officials began considering a petition for antidumping relief in July and began preparing the documents in August. The Ministry of Commerce is believed to be considering the request for an antidumping investigation now, in late October. Chinafeedonline speculates that the investigation could be launched before the end of 2015.
This is not the first antidumping investigation aimed at imported DDGS. About a year after China first began to import DDGS, the industry requested an investigation which was launched in December 2010. That investigation was requested by a collection of fuel ethanol producers and alcohol distillers. The first antidumping investigation lasted a year and received a six-month extension, but it was abandoned in May 2012 without assessing extra duties. However, the investigation nevertheless curbed imports during 2011 as importers feared being slapped with high duties.
This year's rumored antidumping investigation is another chapter in the story of China's fraying attempt to resist downward pressure on prices. Chinese officials have struggled to prevent prices from falling along with world prices, but leaks keep appearing. DDGS prices have fallen along with global corn prices. Chinese DDGS prices are below corn prices only because the Chinese government wouldn't let corn prices fall--in the northeastern provinces--but they are slowly losing their grip on corn prices as well.
On October 27, 2015, China's Farmers Daily published a collection of articles from a "corn industry alert" meeting held by the Ministry of Agriculture's Information Center on October 9 where industry representatives discussed how to deal with problems of soaring corn stockpiles, declining prices, weak demand and pressure from imported corn substitutes. Two of the articles called for limits on DDGS imports to help the domestic ethanol industry return to profitability.
DDGS is the by-product of manufacturing ethanol from corn. China also has manufacturers of ethanol for fuel, beverage and industrial uses who rely on selling distillers grain by-products for a significant portion of their revenue. Domestic DDGS prices have tumbled by half or more over the past year. One price report today says DDGS produced in Jilin Province today is selling for just 1070-1120 yuan per metric ton. Imported DDGS is selling at 1470 yuan/mt at the Qingdao port and 1540 yuan/mt at Tianjin, nearly 1000 yuan less than a year ago.
Zhang Guohong, an author of one of the Farmers Daily articles and an official from China's alcohol industry association, complained that declining prices of imported DDGS have put pressure on Chinese distillers grains prices. Normally, Zhang said, the DDGS price is comparable to or higher than the price of corn, but now DDGS is 600 yuan (roughly 20%) less than the price of corn. This inflicts severe losses on the Chinese alcohol manufacturers, reducing the industry's demand for corn, in turn contributing to the build-up of corn inventories in China. Zhang demanded that the government somehow control imports of American DDGS by raising the tariff, setting an import quota, or strengthening inspection and testing for genetically modified strains of corn in the DDGS.
A second author writing in Farmers Daily, Feng Lichen--a corn industry analyst, estimated that giving tax breaks and subsidies to the fuel ethanol industry could use up 30 million metric tons of China's record-high corn stocks. He then noted that imports of substitutes for corn--sorghum, barley, wheat, DDGS, and cassava--displaced domestic corn, forcing the government to put 26 mmt of domestic corn into reserves. Feng urged the government to adopt stronger inspection and quarantine measures to control imports "without violating WTO principles." (Such a move would actually be a gross violation of WTO principles.)
The Chinafeedonline web site reported the rumor that alcohol distillers in China are requesting an antidumping investigation to protect their profitability. According to Chinafeedonline, industry officials became concerned when DDGS imports surged to 1.1 million metric tons during July 2015 after the row over an unapproved genetically modified corn strain was cleared up early in the year. Imports remained robust during the third quarter and Chinafeedonline estimates that imports are three times the domestic DDGS supply. According to Chinafeedonline, alcohol industry officials began considering a petition for antidumping relief in July and began preparing the documents in August. The Ministry of Commerce is believed to be considering the request for an antidumping investigation now, in late October. Chinafeedonline speculates that the investigation could be launched before the end of 2015.
This is not the first antidumping investigation aimed at imported DDGS. About a year after China first began to import DDGS, the industry requested an investigation which was launched in December 2010. That investigation was requested by a collection of fuel ethanol producers and alcohol distillers. The first antidumping investigation lasted a year and received a six-month extension, but it was abandoned in May 2012 without assessing extra duties. However, the investigation nevertheless curbed imports during 2011 as importers feared being slapped with high duties.
This year's rumored antidumping investigation is another chapter in the story of China's fraying attempt to resist downward pressure on prices. Chinese officials have struggled to prevent prices from falling along with world prices, but leaks keep appearing. DDGS prices have fallen along with global corn prices. Chinese DDGS prices are below corn prices only because the Chinese government wouldn't let corn prices fall--in the northeastern provinces--but they are slowly losing their grip on corn prices as well.
Wednesday, October 21, 2015
China Farm Prices in Free-Fall
With demand weak and another big harvest underway, Chinese prices for major farm commodities are falling. It looks like China's attempt to hold the line against falling world prices over the past two years is gradually collapsing.
Corn prices are leading the decline. In September, Chinese authorities announced that the floor price for corn in northeastern provinces would be 2000 yuan/metric ton, down about 10% from last year. Since then, corn prices in China have fallen about 20% and are now far below the 2000-yuan floor price.
The Ministry of Agriculture price report for October 21 says prices were generally in the 1600-1780 yuan/metric ton-range. Pries are below the 2000-yuan floor in the northeast provinces--Liaoning, Jilin, and Heilongjiang--where the program will begin operation in November. (The floor price, or "temporary reserve" program only applies to the northeastern provinces, but most farmers sell to an intermediary at a discount who then sells the grain on to the granary.)
Corn prices are leading the decline. In September, Chinese authorities announced that the floor price for corn in northeastern provinces would be 2000 yuan/metric ton, down about 10% from last year. Since then, corn prices in China have fallen about 20% and are now far below the 2000-yuan floor price.
The Ministry of Agriculture price report for October 21 says prices were generally in the 1600-1780 yuan/metric ton-range. Pries are below the 2000-yuan floor in the northeast provinces--Liaoning, Jilin, and Heilongjiang--where the program will begin operation in November. (The floor price, or "temporary reserve" program only applies to the northeastern provinces, but most farmers sell to an intermediary at a discount who then sells the grain on to the granary.)
| China corn prices, 2015 (Yuan per metric ton) |
|||
| Province | Sept 1 | Oct. 21 | Change |
| Shandong | 2000-2180 | 1620-1730 | 19%-21% |
| Hebei | 2060-2110 | 1680-1780 | 16%-18% |
| Henan | 1920-1970 | 1560-1620 | 18%-19% |
| Anhui | 1930-1940 | 1530-1550 | 20%-21% |
| Shaanxi | 2020-2040 | 1520-1640 | 20%-25% |
| Shanxi | 2080-2100 | 1600-1640 | 22%-23% |
| Liaoning | 2220-2260 | 1770-1780 | 20%-21% |
| Jilin | 2160-2200 | 1770-1840 | 16%-18% |
| Heilongjiang | 2060-2160 | 1600-1740 | 19%-22% |
According to Securities Daily, the wheat price has also been falling. The decline began in September. It was interrupted by the announcement that the minimum price for next year's crop will be held at 2360 yuan/metric ton, the same level as this year but far above corn prices. The decline in flour production after the October 1 holiday caused the decline in wheat prices to resume this month. Some traders unloaded inventories as they saw prices falling.
Rice prices are supported by the minimum price, but there are reportedly small declines in rice prices as well. The rice-purchase season is just getting underway.
The decline in price in some areas has put pressure on grain traders. According to Securities Daily, media reports say the grain market has an atmosphere of panic in some localities.
Hog prices are declining as lower corn prices reduce feed costs and give this beleaguered sector some breathing space. The decline in hog prices began in the major corn-producing provinces of northern China and prices are declining in southern provinces as well. Soft demand and plentiful supplies are driving hog prices downward. The onset of cold weather and disease outbreaks is prompting some farmers to pre-emptively sell hogs before they are hit by disease.
The surge in pork prices during the summer months has reversed. According to National Development and Reform Commission data, the national average hog price peaked in late August and fell 5 percent by October 14. The price of slaughtered carcasses fell 7 percent. The National Bureau of Statistics reports retail pork prices fell 1%-2% from early September to early October.
With corn prices falling fast, though, profitability has improved for hog producers in China. The ratio of hog price to corn price improved from its low point of 5.04 in March to 7.94 on October 14.
The decline in hog inventories, however, appears to have stabilized. The hog inventory reported by the Ministry of Agriculture increased by 0.6% in September 2015, the third (small) monthly increase in a row. Sow numbers continue to decrease, however, but the decrease was only 0.2% in September, much slower than the 2% decrease in January 2015. The Ministry says that hog inventories are down 11.8% from a year ago and sow inventories are down 15%. The Ministry of Commerce reported a big jump in slaughtered hogs in September although it was 9% less than a year earlier.
The National Bureau of Statistics reported that pork production for the first three quarters of 2015 was down 3.6% from a year earlier. That was a slower decline than they reported for the first two quarters of 2015 (-5.1%) which implies a recovery in the third quarter.
So far, there have been few signs of dissatisfaction in the countryside. Securities Daily worries that the decline in grain prices will undermine progress in achieving the communist party's goal of an "all-round well-off society." The Securities Daily writers then call for reform of the farm subsidy system which they estimate to cost 1 trillion yuan annually (over $160 billion).
Wednesday, October 14, 2015
Grain Piles up in China's Biggest Producing Province
The government grain reserve corporation in China's largest grain-producing province warned that its grain stockpile could grow by 50% after this year's crop is harvested. The grain stockpile is sucking up capital to finance purchases of a commodity that is largely substandard and falling in value. Stricter standards for purchasing threaten to leave farmers stuck with unsalable grain.
The Sinograin Corporation's Heilongjiang Province branch said it is already holding a stockpile of 81 million metric tons (mmt) of grain, and it could grow to 120 mmt after the 2015 crop is marketed. Sinograin anticipates procuring 35-40 mmt of this year's grain crop in Heilongjiang--13 mmt of rice and 22-27 mmt of corn.
The Heilongjiang branch of the government's Agricultural Development Bank of China says it has 140 billion yuan (about $22 billion) to finance purchases of grain for the stockpile if necessary. With a massive oversupply of grain last year, ADBC reported financing 77% of purchases from the province's 2014 grain crop. The bank accounts for a fifth of the entire loan balance by all banks in Heilongjiang, and it accounted for one-fourth of the increase in the province's loan balance in 2015.
The stockpile is the result of China's efforts to prevent grain prices from falling by buying grain at a floor price and storing it in a "temporary reserve" stockpile. In September, the government announced that the floor price would be reduced to 2000 yuan per metric ton for the 2015 crop in the northeastern provinces, down from 2200 yuan last year. The new minimum price is about $8/bushel, nearly double today's corn price at U.S. Gulf of Mexico ports of $4.26/bu. Hence, economic gravity is pulling Chinese prices downward.
An investigation in Heilongjiang Province by a Futures Daily reporter found myriad signs of excess supply. People he interviewed speculated that the 2000-yuan "floor" price would actually be the "ceiling" on corn prices in Heilongjiang, as market prices are likely to end up in the 1800-2000 yuan range. Most farmers and traders there told the reporter they thought this year's corn harvest would be good--though not as good as last year's. However, demand for grain is weak. Feed demand in Heilongjiang is down this year, led by a 14.5% decrease in feed for hogs. The starch price reportedly fell to 2200 yuan/mt in August, just slightly above the floor price for corn, which led to the idling of several major corn processors. The corn price in Shandong Province is 2016 yuan/mt, slightly higher than than the price in Heilongjiang which makes it unprofitable to ship corn there. With a good harvest and weak demand, a big portion of Heilongjiang's corn will again end up in the government's reserve.
Heilongjiang launched its 2015 minimum-price purchases of rice on October 10.
However, the Futures Daily investigation also found that tighter standards are expected to cut the volume of government's corn procurement this year. The requirement for maximum moldy corn is reduced from 5% last year to 2% this year. The government is also raising the requirements for private granaries allowed to procure grain on the government's behalf and demanding collateral for loans, meaures that will disqualify many. An early-maturing corn variety that has been grown in the far north of the province is likely to be refused this year because it is unpalatable and hard for livestock to digest.
An official in Nenjiang, Heilongjiang estimated that only 30% of that region's corn would be able to meet the higher standard for the government's reserve. The official said that the government's procurement this year could fall by half if other areas have a corn quality similar to that in Nenjiang.
These conditions pose a danger that many farmers could be stuck with grain no one will buy. The central government has directed local governments to buy up the substandard grain, but "financial capacity is a big hidden risk" Futures Daily said.
The Sinograin Corporation's Heilongjiang Province branch said it is already holding a stockpile of 81 million metric tons (mmt) of grain, and it could grow to 120 mmt after the 2015 crop is marketed. Sinograin anticipates procuring 35-40 mmt of this year's grain crop in Heilongjiang--13 mmt of rice and 22-27 mmt of corn.
The Heilongjiang branch of the government's Agricultural Development Bank of China says it has 140 billion yuan (about $22 billion) to finance purchases of grain for the stockpile if necessary. With a massive oversupply of grain last year, ADBC reported financing 77% of purchases from the province's 2014 grain crop. The bank accounts for a fifth of the entire loan balance by all banks in Heilongjiang, and it accounted for one-fourth of the increase in the province's loan balance in 2015.
The stockpile is the result of China's efforts to prevent grain prices from falling by buying grain at a floor price and storing it in a "temporary reserve" stockpile. In September, the government announced that the floor price would be reduced to 2000 yuan per metric ton for the 2015 crop in the northeastern provinces, down from 2200 yuan last year. The new minimum price is about $8/bushel, nearly double today's corn price at U.S. Gulf of Mexico ports of $4.26/bu. Hence, economic gravity is pulling Chinese prices downward.
An investigation in Heilongjiang Province by a Futures Daily reporter found myriad signs of excess supply. People he interviewed speculated that the 2000-yuan "floor" price would actually be the "ceiling" on corn prices in Heilongjiang, as market prices are likely to end up in the 1800-2000 yuan range. Most farmers and traders there told the reporter they thought this year's corn harvest would be good--though not as good as last year's. However, demand for grain is weak. Feed demand in Heilongjiang is down this year, led by a 14.5% decrease in feed for hogs. The starch price reportedly fell to 2200 yuan/mt in August, just slightly above the floor price for corn, which led to the idling of several major corn processors. The corn price in Shandong Province is 2016 yuan/mt, slightly higher than than the price in Heilongjiang which makes it unprofitable to ship corn there. With a good harvest and weak demand, a big portion of Heilongjiang's corn will again end up in the government's reserve.
Heilongjiang launched its 2015 minimum-price purchases of rice on October 10.
However, the Futures Daily investigation also found that tighter standards are expected to cut the volume of government's corn procurement this year. The requirement for maximum moldy corn is reduced from 5% last year to 2% this year. The government is also raising the requirements for private granaries allowed to procure grain on the government's behalf and demanding collateral for loans, meaures that will disqualify many. An early-maturing corn variety that has been grown in the far north of the province is likely to be refused this year because it is unpalatable and hard for livestock to digest.
An official in Nenjiang, Heilongjiang estimated that only 30% of that region's corn would be able to meet the higher standard for the government's reserve. The official said that the government's procurement this year could fall by half if other areas have a corn quality similar to that in Nenjiang.
These conditions pose a danger that many farmers could be stuck with grain no one will buy. The central government has directed local governments to buy up the substandard grain, but "financial capacity is a big hidden risk" Futures Daily said.
Tuesday, October 6, 2015
China Closes Reserve to Poor Quality Grain
Substandard wheat and rice harvested in China this summer presents a quandary for Chinese price support programs. Officials are ordered not to purchase substandard grains for the national grain reserve. Instead, provincial officials are being prodded to subsidize purchase of the worthless grain.
With downward pressure on prices and many flour and rice mills operating far below capacity, the government launched intervention purchases at minimum prices for wheat and early-season rice harvested during the summer. The government's grain reserve corporation began buying wheat at support prices in late May in five provinces (Jiangsu, Hubei, Anhui, Henan, and Shandong), In July it began purchasing early-season rice in three provinces (Jiangxi, Hunan, and Hubei).
According to Farmers Daily, total intervention purchases of wheat totaled 19.5 million metric tons as of September 10, which was 23% less than in 2014. Large portions of wheat did not meet government standards in parts of Hubei, Anhui, and Henan, Purchases of early rice totaled 2.75 mmt, down 26% from 2014. Rice purchases were down because of sprouting or poorly-formed kernels in Jiangxi.
A representative from the grain reserve corporation said grain depots must not loosen purchasing standards for grain which would harm the government's interest. Grain depots are also ordered not to downgrade farmers' wheat to pay a lower price.
Farmers Daily learned that central authorities have instead issued orders to provincial governments to buy up the substandard grain as part of their "governors responsibility" for food security.
Beijing is no longer willing to write blank checks to support agricultural commodities as it watches its massive grain, cotton and sugar reserves decline in value day by day. There is likely to be pushback from provinces on this demand to pick up the tab since the grain-producing provinces likely have even worse finances than the central government.
With downward pressure on prices and many flour and rice mills operating far below capacity, the government launched intervention purchases at minimum prices for wheat and early-season rice harvested during the summer. The government's grain reserve corporation began buying wheat at support prices in late May in five provinces (Jiangsu, Hubei, Anhui, Henan, and Shandong), In July it began purchasing early-season rice in three provinces (Jiangxi, Hunan, and Hubei).
According to Farmers Daily, total intervention purchases of wheat totaled 19.5 million metric tons as of September 10, which was 23% less than in 2014. Large portions of wheat did not meet government standards in parts of Hubei, Anhui, and Henan, Purchases of early rice totaled 2.75 mmt, down 26% from 2014. Rice purchases were down because of sprouting or poorly-formed kernels in Jiangxi.
A representative from the grain reserve corporation said grain depots must not loosen purchasing standards for grain which would harm the government's interest. Grain depots are also ordered not to downgrade farmers' wheat to pay a lower price.
Farmers Daily learned that central authorities have instead issued orders to provincial governments to buy up the substandard grain as part of their "governors responsibility" for food security.
Beijing is no longer willing to write blank checks to support agricultural commodities as it watches its massive grain, cotton and sugar reserves decline in value day by day. There is likely to be pushback from provinces on this demand to pick up the tab since the grain-producing provinces likely have even worse finances than the central government.
Monday, October 5, 2015
China Hogs: Bigger Scale Needs Better Management
China produces about half of the world's pigs, but its farmers are still figuring out the business of commercial hog production. The average daily weight gain of hogs has risen dramatically from about 0.4 kg/day in the early 1990s to nearly 0.7 kg/day for "scale" farms (30 or more head), but improvement seems to have plateaued in the last few years.
A recent article in China Livestock and Veterinary News asserts that Chinese farmers are taking on bigger and bigger risks as the scale of hog farms grows larger. The author points out that farmers experience big losses from lackadaisical management and cutting corners in ways that result in spread of disease and poor performance. He hopes that calling attention to these "loopholes" will bring them "from tears to riches."
The author points out that modern livestock production is a high-tech industry, but few people involved in China's hog industry are highly educated. In particular, the author points out that few Chinese farmers use professional veterinarians for treatment or advice. When disease spreads, farmers "blindly" use veterinary drugs to treat animals. The author urges farmers to use high-quality personnel and to pay good wages to motivate them.
Chinese farmers rely too heavily on antibiotics, says the Livestock and Veterinary News author. They routinely use multiple drugs to treat diseases, prevent diseases, and to promote weight gain. Many farmers continue administering drugs right up to the time of slaughter, worrying that animals might get sick if the drugs are stopped. Farmers aren't aware that drugs should not be administered during the days prior to slaughter in order to eliminate residues from the animal's body before it is butchered and consumed by humans.
The article criticizes Chinese farmers for erroneously thinking that more drugs are always better, and for judging the quality of drugs by their price. Farmers aren't aware that different antibiotics are needed to treat different diseases. It is common for farmers to administer a drug for a few days and stop, or to switch from one drug to another before the results can be properly evaluated.
Dosages are often incorrect. Some farmers administer too much, thinking that higher dosages will always be more effective. A common rule-of-thumb is to double the dosage recommended by the manufacturer. In other instances the dosage is too low when the drug is mixed with drinking water or feed and farmers don't take into account the animals' loss of appetite when they are ill.
Another popular strategy among Chinese farmers is to buy the ingredients and mix drugs themselves on the presumption that better results come from using pure ingredients. Farmers are often unaware of proper formulations, either lacking instructions or ignoring them. Some factories provide instructions only in English to give the impression that they are sophisticated and high-quality, but none of the farmers can read them.
Some farmers use probiotics and antibiotics together, which kills off beneficial bacteria. Antibiotics can also kill live viruses in vaccines.
China relies on free government distribution of vaccines to control diseases, but there are a number of loopholes here pointed out by Livestock and Veterinary News. The author says that vaccine inventories are often overstocked because statistics used to distribute the vaccines are inaccurate. Thus, many vaccines are kept past their expiration date. Vaccines are not always kept at proper temperature because electricity supplies are unreliable or transportation equipment is not refrigerated. Tap water or water drawn from dirty rivers is often used to mix vaccines; distilled water, saline solution or other proper diluting agents should be used.
Many farmers don't understand the importance of disinfecting farm facilities, the author asserts. Many farmers just go through the motions of sanitizing their farms.
The author warns farmers not to move pigs into new facilities too quickly. Concrete must be fully hardened and disinfected twice before bringing pigs in. Otherwise, the floors could be too alkaline and give pigs problems with their feet. He also warns that floors that are too slippery could cause inflamed joints or laminitis.
The author points out that inappropriate feed rations are used for some animals. As with medications, farmers often ignore instructions recommended by feed manufacturers. Relatively little feed is formulated specifically for boars (since there aren't that many of them), so many farmers give their boars sow feed instead which does not give them the proper nutrients needed for good performance in what boars do. Many farms use the wrong feed for nursing sows which cuts down on lactation and delays the next breeding. Wet feed breeds mold that emits toxins and mosquitoes that spread disease during hot weather. Farms that feed animals by hand often refill troughs before they are empty, so the feed may stay in the trough too long and thus spoil.
The Livestock and Veterinary Medicine author's emphasis on disease and vaccine issues is borne out by analysis of cost of production data from the China National Development and Reform Commission. The data show that veterinary expenses by Chinese hog producers have been on the rise. Expenses were about 5-10 yuan per head before China's PRRS (known as "blue ear disease") epidemic in 2006-07. Expenses rose sharply during that period, and have now risen to 20 yuan per head for "scale" farms and 15 yuan for "backyard" farms. "Scale" farms consistently spend more on veterinary expenses than do "backyard" producers. Presumably, these expenses exclude the cost of free vaccinations for classical swine fever, foot and mouth disease, and PRRS provided by the Chinese Ministry of Agriculture.
A comparison with data from USDA cost of production data indicates that Chinese hog farms spend more on veterinary expenses than U.S. farmers do. In 2014, U.S. producers spent an average of $1.14 per 100lbs of weight gain on veterinary items. Calculations using the Chinese data indicate that "scale" Chinese producers spent $1.49 per 100lbs of weight gain, about 25% more than U.S. producers. Chinese producers consistently spent 15%-30% more than U.S. producers on veterinary expenses from 2009 to 2014.
Mortality losses for Chinese hog producers are also up. And "scale" producers appear to have higher losses than "backyard" producers, despite their higher veterinary expenses. The Chinese production cost estimates indicate that "scale" producers were hit especially hard by the PRRS outbreak during 2006-07 and by China's piglet diarrhea epidemic during 2011. Expenses from death loss are consistently higher for "scale" hog farms than for "backyard" farms, seemingly confirming the Livestock and Veterinary News author's concern that Chinese farmers are taking on greater risk as the scale of farms expands.
It is imperative that China address these issues. China produces more than half the world's hogs but it also produces the most expensive ones. Comparing farm prices of hogs in the U.S. and China shows that Chinese prices have soared above U.S. prices and the ratio was about 2:1 in August 2015. EU prices have been a little lower than U.S. prices, so it's likely that China has the most expensive hogs of any major producer. Improving productivity and reducing disease losses are among the measures needed to reduce those costs.
Source: Calculated from China National Development and Reform Commission
production cost survey data.
The author points out that modern livestock production is a high-tech industry, but few people involved in China's hog industry are highly educated. In particular, the author points out that few Chinese farmers use professional veterinarians for treatment or advice. When disease spreads, farmers "blindly" use veterinary drugs to treat animals. The author urges farmers to use high-quality personnel and to pay good wages to motivate them.
Chinese farmers rely too heavily on antibiotics, says the Livestock and Veterinary News author. They routinely use multiple drugs to treat diseases, prevent diseases, and to promote weight gain. Many farmers continue administering drugs right up to the time of slaughter, worrying that animals might get sick if the drugs are stopped. Farmers aren't aware that drugs should not be administered during the days prior to slaughter in order to eliminate residues from the animal's body before it is butchered and consumed by humans.
The article criticizes Chinese farmers for erroneously thinking that more drugs are always better, and for judging the quality of drugs by their price. Farmers aren't aware that different antibiotics are needed to treat different diseases. It is common for farmers to administer a drug for a few days and stop, or to switch from one drug to another before the results can be properly evaluated.
Dosages are often incorrect. Some farmers administer too much, thinking that higher dosages will always be more effective. A common rule-of-thumb is to double the dosage recommended by the manufacturer. In other instances the dosage is too low when the drug is mixed with drinking water or feed and farmers don't take into account the animals' loss of appetite when they are ill.
Another popular strategy among Chinese farmers is to buy the ingredients and mix drugs themselves on the presumption that better results come from using pure ingredients. Farmers are often unaware of proper formulations, either lacking instructions or ignoring them. Some factories provide instructions only in English to give the impression that they are sophisticated and high-quality, but none of the farmers can read them.
Some farmers use probiotics and antibiotics together, which kills off beneficial bacteria. Antibiotics can also kill live viruses in vaccines.
China relies on free government distribution of vaccines to control diseases, but there are a number of loopholes here pointed out by Livestock and Veterinary News. The author says that vaccine inventories are often overstocked because statistics used to distribute the vaccines are inaccurate. Thus, many vaccines are kept past their expiration date. Vaccines are not always kept at proper temperature because electricity supplies are unreliable or transportation equipment is not refrigerated. Tap water or water drawn from dirty rivers is often used to mix vaccines; distilled water, saline solution or other proper diluting agents should be used.
Many farmers don't understand the importance of disinfecting farm facilities, the author asserts. Many farmers just go through the motions of sanitizing their farms.
The author warns farmers not to move pigs into new facilities too quickly. Concrete must be fully hardened and disinfected twice before bringing pigs in. Otherwise, the floors could be too alkaline and give pigs problems with their feet. He also warns that floors that are too slippery could cause inflamed joints or laminitis.
The author points out that inappropriate feed rations are used for some animals. As with medications, farmers often ignore instructions recommended by feed manufacturers. Relatively little feed is formulated specifically for boars (since there aren't that many of them), so many farmers give their boars sow feed instead which does not give them the proper nutrients needed for good performance in what boars do. Many farms use the wrong feed for nursing sows which cuts down on lactation and delays the next breeding. Wet feed breeds mold that emits toxins and mosquitoes that spread disease during hot weather. Farms that feed animals by hand often refill troughs before they are empty, so the feed may stay in the trough too long and thus spoil.
The Livestock and Veterinary Medicine author's emphasis on disease and vaccine issues is borne out by analysis of cost of production data from the China National Development and Reform Commission. The data show that veterinary expenses by Chinese hog producers have been on the rise. Expenses were about 5-10 yuan per head before China's PRRS (known as "blue ear disease") epidemic in 2006-07. Expenses rose sharply during that period, and have now risen to 20 yuan per head for "scale" farms and 15 yuan for "backyard" farms. "Scale" farms consistently spend more on veterinary expenses than do "backyard" producers. Presumably, these expenses exclude the cost of free vaccinations for classical swine fever, foot and mouth disease, and PRRS provided by the Chinese Ministry of Agriculture.
Source: China National Development and Reform Commission
production cost data.
Mortality losses for Chinese hog producers are also up. And "scale" producers appear to have higher losses than "backyard" producers, despite their higher veterinary expenses. The Chinese production cost estimates indicate that "scale" producers were hit especially hard by the PRRS outbreak during 2006-07 and by China's piglet diarrhea epidemic during 2011. Expenses from death loss are consistently higher for "scale" hog farms than for "backyard" farms, seemingly confirming the Livestock and Veterinary News author's concern that Chinese farmers are taking on greater risk as the scale of farms expands.
Source: China National Development and Reform Commission
production cost data.
Source: China National Development and Reform Commission
and USDA, National Agricultural Statistics Service