Corn prices – and with them, the price of meat – are set to explode if the latest import estimates from China are correct.
Last year, Beijing recorded its largest imports of corn since its disastrous crop of 1995-96. But this year could see further record buying. The US Grain Council, the industry body, said late on Thursday that it has received information pointing to Chinese imports as high as 9m tonnes in 2011-12, up from 1.3m in 2010-11.
If true, it means that the corn market is a lot tighter than even the most bullish traders imagine. The US Department of Agriculture, which compiles benchmark estimates of supply, demand and stocks, forecast Chinese imports at just 1m tonnes in 2011-12.
The most China has imported in modern history is 4.3m tonnes in 1994-95 and 3m tonnes in 1978-79. For most of the past 50 years, Beijing has been largely absent from the international market, as domestic production was enough to meet demand.
But Terry Vinduska, the chairman of the council, said after visiting China that “estimates given to us were that China is short of 10m-15m tonnes in stocks and will need to purchase corn this year”. He pointed to about 9m tonnes in imports. “We learned the government normally keeps stocks at 30 per cent but they are currently a little over 5 per cent, which may lead to imports of 3m-9m tonnes. . . .
It is not the first warning of forthcoming massive imports. Recently, David C. Nelson, at Rabobank, one of the world’s largest lenders to the global agribusiness industry, warned that because China’s animal protein industry is so large, the order of magnitude of China shifting to become a net importer of corn could possibly be measured in tens of millions of tonnes, and in just a few years time.The potential magnitude of China's impact on world food markets is also underlined by the following chart and story from the New York Times. Heretofore, China has been basically self-sufficient in wheat production, but the current drought, among other causes, suggests that it could become a big importer of wheat as well as corn.
“We note that China could become a net importer of 25m tonnes of corn as early as 2015,” he said.
"U.N. Food Agency Issues Warning on China Drought," February 9, 2011
The United Nations’ food agency issued an alert on Tuesday warning that a severe drought was threatening the wheat crop in China, the world’s largest wheat producer, and resulting in shortages of drinking water for people and livestock.
China has been essentially self-sufficient in grain for decades, for national security reasons. Any move by China to import large quantities of food in response to the drought could drive international prices even higher than the record levels recently reached.
“China’s grain situation is critical to the rest of the world — if they are forced to go out on the market to procure adequate supplies for their population, it could send huge shock waves through the world’s grain markets,” said Robert S. Zeigler, the director general of the International Rice Research Institute in Los Baños, in the Philippines.
The state-run news media in China warned Monday that the country’s major agricultural regions were facing their worst drought in 60 years. On Tuesday the state news agency Xinhua said that Shandong Province, a cornerstone of Chinese grain production, was bracing for its worst drought in 200 years unless substantial precipitation came by the end of this month.
World wheat prices are already surging, and they have been widely cited as one reason for protests in Egypt and elsewhere in the Arab world. A separate United Nations report last week said global food export prices had reached record levels in January. The impact of China’s drought on global food prices and supplies could create serious problems for less affluent countries that rely on imported food.
With $2.85 trillion in foreign exchange reserves, nearly three times that of Japan, the country with the second-largest reserves, China has ample buying power to prevent any serious food shortages.
"They can buy whatever they need to buy, and they can outbid anyone,” Mr. Zeigler said. China’s self-sufficiency in grain prevented world food prices from moving even higher when they spiked three years ago, he said.
The United Nations Food and Agriculture Organization said Tuesday that 12.75 million acres of China’s 35 million acres of wheat fields had been affected by the drought. It said that 2.57 million people and 2.79 million head of livestock faced shortages of drinking water. . . .
Typically, world food reports barely mention China, partly because many details of the country’s agriculture production and reserves are state secrets. But China, in fact, is enormously important to the world’s food supply, especially if something goes wrong.
The heat wave in Russia last summer, combined with floods in Australia in recent months, has drawn worldwide attention to the international wheat market, because Russia and Australia have historically been big exporters. But China’s wheat industry has existed in almost total isolation from the rest of the world, with virtually no exports or imports, until last year, when modest imports began. Yet it is enormous, accounting for one-sixth of global wheat output. The statistical database of the United Nations’ food agency shows that in 2009, the last year available, China produced almost twice as much wheat as the United States or Russia and more than five times as much as Australia.
Currently, the ground in the country is so dry from Beijing south through the provinces of Hebei, Henan and Shandong to Jiangsu Province, just north of Shanghai, that trees and houses are coated with topsoil that has blown off parched fields.
China’s national obsession with self-sufficiency in food includes corn, another crop that is grown and consumed entirely in China with minimal imports or exports. Little known outside of China, the country’s corn industry actually grows one-fifth of the world’s corn, according to F.A.O. statistics. China’s corn crop is mostly in the country’s northern provinces, where the drought is worst now.