Typhoon No Bar to Third Record Chinese Corn Harvest: Commodities
Chinese farmers are reaping a third record corn harvest even after a typhoon wiped out some of the crop, easing demand for imports at a time when the U.S. drought is driving sales from the biggest exporter to a four-decade low.
The harvest rose 3.6 percent to 199.74 million metric tons, according to a survey of farmers in China’s seven biggest producing provinces by Geneva-based SGS SA (SGSN) for Bloomberg. The country’s stockpiles last month were at a nine-year high, and the U.S. Department of Agriculture expects a 64 percent drop in imports. The agency will raise its estimate for U.S. reserves by 2.4 percent when it reports Nov. 9, the average of 29 analyst estimates compiled by Bloomberg shows.
Consumers are paying the most ever for corn this year after drought parched U.S. and European crops, contributing to a 7.7 percent rise in United Nations-tracked global food prices since June. Chinese farms planted more acres and used hybrid seeds to supply feed to the world’s biggest hog herd after the country shipped in more corn in the past three years than it had in the previous 22. Prices will drop 12 percent by March, according to U.S. Commodities Inc. in West Des Moines, Iowa.
“China’s best investment has been to boost its corn production,” said Jeff Hainline, the president of Advance Trading Inc. in Bloomington, Illinois, who has been buying and selling grain since 1977. “China has more than enough corn to last until the next harvest.”
Futures rose 68 percent in less than two months to a record $8.49 on Aug. 10 on the Chicago Board of Trade, before trading at $7.41 today. The Standard & Poor’s GSCI Agriculture Index of eight commodities advanced 11 percent this year amid the worst U.S. drought since 1956. The MSCI All-Country World Index of equities gained 11 percent, and Treasuries returned 1.8 percent, a Bank of America Corp. index shows.
Corn may drop to $6.50 by March, when Argentina and Brazil begin their harvests, said Don Roose, the president of U.S. Commodities Inc., who has been advising farmers and grain elevators since 1979. The two countries will account for about 38 percent of global exports in the year ending Sept. 30, 2013.
China sowed 4.7 percent more land with corn than in 2011, based on the SGS surveys of 302 farmers compiled by five agronomy teams. Corn was the dominant crop in all seven regions, according to SGS, whose predictions in the past two years were within about 1 percentage point of the USDA’s final estimates.
Output reached a record 192.78 million tons last year, exceeding demand for the first time in three years, USDA data show. Inventories before the 2012 harvest that began in September were the most since 2003. Prices in Heilongjiang province, the largest producer, fell to the lowest in seven months on Oct. 24, according to Shanghai JC Intelligence Co. The USDA said the following day that China canceled 120,300 tons of purchases scheduled for delivery before Aug. 31.
Some of this year’s Chinese crop got triple the normal rainfall in the three months ended Aug. 31, especially in Inner Mongolia, said David Streit, the senior forecaster for the Commodity Weather Group LLC in Bethesda, Maryland. Timely rains in August in Shandong, the third-biggest producer, and a lack of heat stress throughout the region also helped, he said.
A bigger crop in China won’t reverse a drop in global inventories. The USDA probably will cut its forecast by 0.7 percent on Nov. 9, the Bloomberg survey showed. The agency already expects the lowest stocks-to-use ratio since 1974 amid the smallest U.S. harvest in six years.
China became a net corn importer in 2010 for the first time since 1996. As per-capita income more than doubled since 2000, pork consumption gained 23 percent and dairy use advanced 38 percent, according to the USDA. Corn acreage exceeded rice for the first time ever in 2007 and expanded another 16 percent since then, USDA data show.
“The world is just too short on corn, and Chinese supplies will not be exported into the world market, leaving the U.S. as the last residual supplier,” said William Tierney, the chief economist for AgResource Co. in Chicago and a former USDA analyst. “Corn futures should rise to new highs.”
Record prices probably will spur more planting next season. Informa Economics Inc., a Memphis, Tennessee-based agricultural researcher, said Nov. 2 that global output will jump 14 percent to a record 950.69 million tons next year, mostly because of a 36 percent gain in the U.S. and bigger crops in Europe and Ukraine.
The USDA will boost its estimate for domestic inventories before next year’s harvest to 634 million bushels on Nov. 9, from 619 million last month, according to the average estimate in Bloomberg’s survey. That still implies a 36 percent decline from a year earlier.
Export commitments for U.S. corn delivered by Aug. 31 are 48 percent lower than a year ago, government data show. Buyers are seeking cheaper grain from other suppliers, including Brazil, whose exports rose to a record for a third consecutive month in October. Brazil surpassed Argentina this year as the world’s second-biggest corn exporter, according to the USDA.
Chinese production is rising even after August’s Typhoon Bolaven reduced average yields by about 0.5 percent, according to the SGS survey. The teams were gathering information in a region where about 55 percent of the farms are less than 1 hectare (2.47 acres). Other than corn, about 6.7 percent of the region’s crops are soybeans and rice 5.7 percent, SGS said.
“Production easily could have been 10 million metric tons larger if the Typhoon had missed the main growing region,” said Mark Oulton, the market research director for SGS in Wilkes- Barre, Pennsylvania. Farmers said they expect a “very optimistic” 19 percent jump in planting next year, he said.
The cost of seed, fertilizer and crop-protection chemicals rose an average of 4.1 percent in 2012, compared with 25 percent in 2011, the survey showed. A 4.1 percent drop in fertilizer prices, the biggest production cost in China, offset gains of 14 percent for seeds and 49 percent for chemicals to fight pests and weeds, Oulton said. Severe insect damage increased to 21 percent of plantings, from 14 percent in 2011, the survey showed.
Improved seed hybrids have increased production in some fields by as much as 30 percent since 2005 in China, where the government forbids the sale of genetically modified crops more common in the U.S., said William S. Niebur, a vice president and general manager of DuPont Pioneer China in Beijing.
Most Chinese farmers plant and harvest by hand, meaning productivity lags behind North America or Europe. Even after the worst Midwest drought in more than 50 years, U.S. yields will be 31 percent larger than in China this year. American farmers produced 60 percent more per acre last year.
“The government is openly talking about the need to improve the operating environment for seed companies,” said Niebur. “China corn production is the most important story for world agricultural production in the next decade.”
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