China reaped its seventh record corn crop in eight years in the harvest now ending. That still won’t be enough to meet demand, driving a fivefold gain in imports as prices head for the highest-ever annual average.
Production reached 189.2 million metric tons in the harvest that began in September, 6.7 percent more than a year earlier, according to a survey of growers in the seven main producing regions carried out by Geneva-based SGS SA for Bloomberg. Imports in the marketing year that began last month may jump to 5 million tons from 1 million tons, according to the median estimate of 10 analysts and traders surveyed by Bloomberg.
While the supply predicted in the SGS survey would exceed the U.S. Department of Agriculture’s estimate by more than 7 million tons, rising imports show farmers are failing to grow enough grain for livestock feed. The fivefold expansion in China’s economy in the past decade reported by the World Bank spurred a change in diets. The dairy herd almost tripled since 2000, and per capita pork consumption in the nation of 1.34 billion people rose 26 percent, USDA estimates show.
“It’s an amazing crop, but demand is just too strong,” said Dan Cekander, the director of research at Newedge USA LLC in Chicago, who toured corn fields in Jilin Province, the top grower, during September. “Everybody has been projecting a record crop, and yet domestic prices are historically high, and the Chinese government just bought U.S. corn.”
Corn futures on the Chicago Board of Trade have gained 3.9 percent to $6.535 a bushel this year and averaged $6.90, heading for the highest-ever annual figure. The grain will probably reach $7.25 in the first quarter, Cekander said. Prices in Jilin jumped 16 percent and touched a record 2,430 yuan a ton ($9.67 a bushel) on Sept. 19, according to Shanghai JC Intelligence Co., the nation’s biggest independent agricultural researcher.
The USDA announced Oct. 13 that China bought 900,000 tons of corn, the most in a single day since a 1.45 million-ton purchase in 1994.
Corn has outperformed this year’s 13 percent drop in the Standard & Poor’s GSCI Agriculture Index of eight commodities and the 6.9 percent decline in the MSCI All-Country World Index of equities. Treasuries have returned 8.8 percent, Bank of America Corp. indexes show.
Chinese demand rose 50 percent since 2000 as output gained 38 percent, USDA data show. Only the U.S. grows and uses more. China, which became a net importer for the first time in 14 years in 2010, is “entering a golden age for consumption,” Morgan Stanley analysts led by Hussein Allidina said in a report Oct. 25. They expect an average of $7.25 in the 12 months that began Sept. 1, from $6.4725 a year earlier.
Prices may not accelerate as much as anticipated because of slowing economic growth. Corn demand rose 1.1 percent in 2009, the least in six years, as nations contended with the worst global recession since World War II, USDA data show. Corn fell 18 percent from this year’s high for a most-active contract of $7.93 in Chicago on June 9.
Plunging wheat prices also may help contain corn costs as farmers switch to cheaper supplies for feed. Corn trades at a premium of 17.5 cents a bushel, compared with an average discount of $1.83 in the past five years, data compiled by Bloomberg show. Wheat use in feed will expand 9.5 percent to 124.2 million tons, compared with a 1.4 percent gain in food demand, the London-based International Grains Council estimates.
Weaker growth could be compounded by a continued expansion in output. Farmers surveyed by SGS said they will plant 4.6 percent more corn next year, after a 6.1 percent increase in 2011. The survey included interviews with 305 farmers in the seven-province northeast region that accounts for about 68 percent of the nation’s output.
More supply may help ease inflation that reached a three-year high in July, fueled by a 57 percent jump in pork prices. Consumption of the meat in China, which produces about 50 percent of the world’s supply, will rise 3.5 percent to a record 51.56 million tons in 2012 from a year earlier, USDA data show.
China became the largest buyer of U.S. farm products in 2010. The nation purchased 1.98 million tons of U.S. corn for delivery before Aug. 31, 2012, six times the quantity a year earlier, USDA data show. An additional 4.7 million tons was sold to unknown destinations and 1.1 million of that amount may be to China, Newedge’s Cekander said.
“In the last few years, the government auctioned off some of its reserves to cool prices and hasn’t been able to fully replenish them,” said Li Qiang, the managing director of Shanghai JC Intelligence. “China importing corn is not a short-lived event. It’s a medium-to-long-term trend.”
Chinese imports may reduce global stockpiles more than expected before the Northern Hemisphere harvests. The USDA on Oct. 12 predicted a 5.1 percent drop in inventories to a five-year low of 123.2 million tons. The agency will update its forecasts Nov. 9.
Production in China will likely fall 11 million tons short of demand by 2015, Li Xigui, the deputy head of grains at the state-run China National Grains and Oils Information Center, said at a conference in Singapore on Sept. 20. Importing corn to make up the deficit would rank the country as the world’s second-biggest buyer after Japan.
Agricultural production faces “grave challenges,” Fang Yan, a deputy director at the government’s National Development and Reform Commission, told a conference in the southern city of Haikou on Nov. 1. Increasing urbanization, changing diets and higher production costs make ensuring food supplies more difficult, Fang said.
The country may need to import as much as 7 million tons of corn and 4 million tons of lower-quality wheat next year to feed its hog, poultry and dairy herds, said Dan Basse, the president of AgResource Co., a research company in Chicago.
“China’s record harvest still doesn’t equate to a surplus because the government has to replenish depleted inventories,” said Troy Lust, a senior risk manager for commercial grain at INTL FCStone Inc., a commodity brokerage in West Des Moines, Iowa. “The one thing that could derail the Chinese economy is food insecurity, and they will do whatever is needed.”