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.