China Corn Market: Supply Pressure This Year

Most analysts think China now has a substantial deficit between its production and use of corn which is being filled by dumping a purportedly huge stockpile into the market. Does that mean China will eventually become a major corn importer when the stockpile is depleted? No one really knows for sure because every component of supply and demand is clouded by uncertainty.

• Last fall, Chinese statisticians adjusted their estimate of corn production upward by 20 percent after discovering 42 million metric tons of additional corn they didn't know about.
• The statisticians claimed that the country produced 259 mmt in 2017/18, but the grain bureaucracy reported that only 98 mmt was purchased.
• Authorities claimed to have auctioned off an implausible 100 mmt of corn from implausibly large stockpiles during April-October 2018.
• We know that China imports 2-to-3 mmt of corn. But imports of corn substitutes--sorghum, DDGS, barley, cassava and cassava starch--have fluctuated, affecting corn consumption to an unknown degree. Imports of corn substitutes soared to 37 mmt in 2014/15, displacing an unknown amount of Chinese corn from consumption. Imports of substitutes fell 20 mmt during 2017/18 and 2 mmt during the first 3 months of 2018/19, crimped by antidumping duties on DDGS, threatened AD duties and retaliatory tariffs on sorghum, and a threatened AD investigation of Australian barley.  
• Chinese authorities announced ambitious plans to expand ethanol production nationwide by 2020, but only marginal increases have actually occurred. 
• Industrial processing of corn was heavily subsidized during 2016/17 and less so during 2017/18.

The blanket of fog over China's corn market is evident in a comparison of 2018/19 balance sheets by eight organizations that are all over the map. USDA, Ministry of Agriculture (MARA) and China National Grain and Oils Information Center (CNGOIC) have all adopted the 257.3 mmt production number officially announced by the National Bureau of Statistics.  Others have lower production numbers. Estimates of corn use range from about 250 mmt to 310 mmt, but these are all wild guesses. (MARA increased its estimates of both production and use by 40 mmt after incorporating the revised production number in January.) Most organizations expect moderate imports of 3 to 5 mmt. JCI expects a whopping 14.5-mmt of Chinese corn imports. MARA always low-balls imports early in the marketing year. 

Estimates of China corn supply & demand for 2018/19 (million metric tons, Jan-Feb 2019)
Organization	Output	Use	Imports	Inventory change
USDA	257.3	277.0	5.0	-14.7
MARA-CASDE	257.3	285.3	1.5	-26.5
CNGOIC	257.3	287.9	3.0	-27.0
JCI	246.0	309.8	14.5	-50.0
Yumi.com	234.1	251.7	3.5	-14.3
Cofeed	222.0	247.1	5.0	-20.0
Rabobank	203.0	256.0	5.0	na
BRICS	210.0	255.5	3.5	-5.0

China claims that its corn stockpile peaked at more than a year's production, and authorities made disposal of the stockpile one of their policy priorities over the last three years. All organizations expect a significant reduction in inventories in 2018/19 ranging from -5 mmt to -50 mmt. Does China really have a deficit between annual corn supply and use of 25 mmt or more--as MARA and CNGOIC estimate? If so, does that mean China will one day import that 25-mmt deficit when it finally depletes its corn stockpile?

Most analysts agree that only a portion of the 100 mmt of corn auctioned during 2018 was actually used, and CNGOIC estimates that 45 mmt of it was carried over to 2018/19.

One recent corn outlook by Chinese futures analysts anticipates that this carryover will be one of several factors putting downward pressure on China's corn market this year. In May 2019 authorities are expected to start auctioning the estimated 79-mmt of corn that remains in the temporary reserve. The Ministry of Agriculture said they expect the reserve de-stocking to be completed this year. With potential buyers still holding 45 mmt of last year's auctioned corn and another 257-mmt corn harvest, auction prices will have to be set low in order to successfully dispose of the stockpile.

African swine fever has discouraged swine producers from restocking herds, potentially shrinking feed use of corn. MARA announced two new cases today in two new provinces: Shandong and Guangxi.

The futures analysts worry that more aggressive auctions of low quality wheat and rice from reserves could also compete with corn in feed and ethanol use. Moreover, a pledge to buy U.S. corn and possibly other feeds to settle the trade war could further add to supply, driving prices down further.

China Grain and Oils News notes that farmers have been slow to sell their corn this year. Only 62.5 mmt of the 257-mmt crop had been purchased as of 10 February, 16.7 mmt less than a year ago. That suggests farmers have plenty of corn left to sell in the next few months of the peak marketing season, adding more downward pressure on prices.

If Chinese authorities agree to buy U.S. corn, they will likely ship it directly to a warehouse and lock it up for a couple years until China's corn glut finally dissipates.