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Saturday, December 11, 2010 7:44:18 AM
China Is Reshaping World Grain Market
[See #msg-53059927 for a related story.]
http://online.wsj.com/article/SB10001424052748704720804576009790503679556.html
›DECEMBER 10, 2010
By SCOTT KILMAN
China could emerge in the next few years as the world's biggest importer of corn, which would reshape global grain markets, according to a new report by agribusiness lending giant Rabobank Group.
The report by analysts at Rabobank, which is a lender and investment banker to many of the world's biggest food concerns, predicts China's demand for imported corn will soar to about 25 million metric tons annually, or roughly one billion bushels, by 2015, from this year's 1.3 million metric tons, or about 51 million bushels.
Rabobank's forecasted figure represents a whopping 27% increase in the global trading of corn from current levels, a surge that could strain the world's corn supplies if production doesn't increase significantly.
The Rabobank projection is potentially controversial, because it is much larger than official forecasts. The U.S. Department of Agriculture, in its long-range projection released in February, foresaw China importing about 75 million bushels of corn in 2015. The difference largely reflects China's reluctance to reveal much about its agricultural sector.
The Rabobank report doesn't predict how such Chinese purchases would lift the price of corn, which has climbed about 60% over the past year amid a demand boom that is draining U.S. reserves to their lowest levels since the mid-1990s.
Still, such an export surge would mostly benefit farmers in the U.S., which currently controls half of the world trade in corn, while potentially raising costs for U.S. companies that use corn to fatten livestock and to make food ingredients.
"We believe that these assumptions are conservative, and that the implication of the analysis for world grain markets is potentially dramatic," said the report, the chief author of which is David C. Nelson, the former Credit Suisse agribusiness equities analyst who last summer became a global strategist at Rabobank, with headquarters in Utrecht, Netherlands.
Some analysts independent of Rabobank have speculated that corn futures prices could rise to $7 a bushel if China were to go on a buying spree over the next few months.
Grain traders have long salivated at the prospect of China turning to foreign corn in a big way. But Western analysts haven't had much luck predicting when this would happen. A wave of Chinese buying in the mid-1990s ignited speculation of a trade boon for U.S. farmers. But it was a blip, and China was able to resume exporting corn throughout Asia, although that business has evaporated in recent years.
China's intentions are hard for foreigners to decipher. The Communist Party is tight-lipped about the nation's ability to feed itself. In a nation convulsed by famine in just the last century, grain self-sufficiency is seen as crucial to national security.
While China is the world's largest importer of soybeans and cotton, Beijing wants Chinese farmers to supply at least 95% of the grains—such as wheat and corn—that the country consumes through 2020.
China has a long history of stockpiling large amounts of crops. China doesn't disclose the size of its corn reserves, but the U.S. Agriculture Department estimates that about one-third of the world's corn and wheat reserves—the crops left over by the time a new harvest begins—are now held in China. Put another way, China harvested about half of the corn the U.S. harvested this year, but will stockpile three times as much, according to USDA forecasts.
Rabobank is predicting a much bigger Chinese appetite for foreign corn than other forecasters, in part because its analysts think Washington is overestimating the size of China's corn reserves, which the USDA puts this year at 2.1 billion bushels, and at 2.4 billion bushels for 2011.
Rabobank said it has heard private reports that Chinese corn inventories are below 400 million bushels. Such a relatively tight supply could help to explain why the domestic price of Chinese corn is much higher than the international price, and why China has moved to limit purchases by processors that convert corn into industrial products, Rabobank said.
In another sign that China's grain self-sufficiency policy is in trouble, some Chinese officials are beginning to warn that the size of its harvests might grow more slowly in the future.
Citing water scarcity in some farming areas, and a tight supply of arable land, Chen Xiwen, who heads the State Council's office on rural policy, wrote in an essay recently published on the website of the Chinese Academy of Social Sciences' Rural Development Institute: "It's inevitable that the rate of self-sufficiency will decline."
The USDA is slated to update its picture of the Chinese corn situation on Friday as part of its monthly analysis of world agricultural markets.
China's appetite for corn is accelerating because its rapidly expanding middle class has a taste for products that come from grain-fed animals, including pork, milk, eggs and chicken.
Already home to the world's biggest hog population, China is encouraging farmers to adopt Western methods, such as moving livestock from the backyard into factory-style confinement operations, and feeding their animals crops such as soybeans and grain instead of slop. China will probably buy about a third of all the soybeans harvested in the U.S. this year, much of which will be feed to livestock, according to various forecasts.
According to Rabobank's calculations, China's domestic grain farming sector is so big that, by 2015, it could import 25 million metric tons of corn and still honor its policy of growing 95% of the grain it consumes.
In July, the chairman of Chinese consulting firm Shanghai JC Intelligence Co. gave a speech to the U.S. Grains Council, a Washington-based trade group, projecting that China might need to annually import 15 million tons, or 591 million bushels, by 2015.‹
[See #msg-53059927 for a related story.]
http://online.wsj.com/article/SB10001424052748704720804576009790503679556.html
›DECEMBER 10, 2010
By SCOTT KILMAN
China could emerge in the next few years as the world's biggest importer of corn, which would reshape global grain markets, according to a new report by agribusiness lending giant Rabobank Group.
The report by analysts at Rabobank, which is a lender and investment banker to many of the world's biggest food concerns, predicts China's demand for imported corn will soar to about 25 million metric tons annually, or roughly one billion bushels, by 2015, from this year's 1.3 million metric tons, or about 51 million bushels.
Rabobank's forecasted figure represents a whopping 27% increase in the global trading of corn from current levels, a surge that could strain the world's corn supplies if production doesn't increase significantly.
The Rabobank projection is potentially controversial, because it is much larger than official forecasts. The U.S. Department of Agriculture, in its long-range projection released in February, foresaw China importing about 75 million bushels of corn in 2015. The difference largely reflects China's reluctance to reveal much about its agricultural sector.
The Rabobank report doesn't predict how such Chinese purchases would lift the price of corn, which has climbed about 60% over the past year amid a demand boom that is draining U.S. reserves to their lowest levels since the mid-1990s.
Still, such an export surge would mostly benefit farmers in the U.S., which currently controls half of the world trade in corn, while potentially raising costs for U.S. companies that use corn to fatten livestock and to make food ingredients.
"We believe that these assumptions are conservative, and that the implication of the analysis for world grain markets is potentially dramatic," said the report, the chief author of which is David C. Nelson, the former Credit Suisse agribusiness equities analyst who last summer became a global strategist at Rabobank, with headquarters in Utrecht, Netherlands.
Some analysts independent of Rabobank have speculated that corn futures prices could rise to $7 a bushel if China were to go on a buying spree over the next few months.
Grain traders have long salivated at the prospect of China turning to foreign corn in a big way. But Western analysts haven't had much luck predicting when this would happen. A wave of Chinese buying in the mid-1990s ignited speculation of a trade boon for U.S. farmers. But it was a blip, and China was able to resume exporting corn throughout Asia, although that business has evaporated in recent years.
China's intentions are hard for foreigners to decipher. The Communist Party is tight-lipped about the nation's ability to feed itself. In a nation convulsed by famine in just the last century, grain self-sufficiency is seen as crucial to national security.
While China is the world's largest importer of soybeans and cotton, Beijing wants Chinese farmers to supply at least 95% of the grains—such as wheat and corn—that the country consumes through 2020.
China has a long history of stockpiling large amounts of crops. China doesn't disclose the size of its corn reserves, but the U.S. Agriculture Department estimates that about one-third of the world's corn and wheat reserves—the crops left over by the time a new harvest begins—are now held in China. Put another way, China harvested about half of the corn the U.S. harvested this year, but will stockpile three times as much, according to USDA forecasts.
Rabobank is predicting a much bigger Chinese appetite for foreign corn than other forecasters, in part because its analysts think Washington is overestimating the size of China's corn reserves, which the USDA puts this year at 2.1 billion bushels, and at 2.4 billion bushels for 2011.
Rabobank said it has heard private reports that Chinese corn inventories are below 400 million bushels. Such a relatively tight supply could help to explain why the domestic price of Chinese corn is much higher than the international price, and why China has moved to limit purchases by processors that convert corn into industrial products, Rabobank said.
In another sign that China's grain self-sufficiency policy is in trouble, some Chinese officials are beginning to warn that the size of its harvests might grow more slowly in the future.
Citing water scarcity in some farming areas, and a tight supply of arable land, Chen Xiwen, who heads the State Council's office on rural policy, wrote in an essay recently published on the website of the Chinese Academy of Social Sciences' Rural Development Institute: "It's inevitable that the rate of self-sufficiency will decline."
The USDA is slated to update its picture of the Chinese corn situation on Friday as part of its monthly analysis of world agricultural markets.
China's appetite for corn is accelerating because its rapidly expanding middle class has a taste for products that come from grain-fed animals, including pork, milk, eggs and chicken.
Already home to the world's biggest hog population, China is encouraging farmers to adopt Western methods, such as moving livestock from the backyard into factory-style confinement operations, and feeding their animals crops such as soybeans and grain instead of slop. China will probably buy about a third of all the soybeans harvested in the U.S. this year, much of which will be feed to livestock, according to various forecasts.
According to Rabobank's calculations, China's domestic grain farming sector is so big that, by 2015, it could import 25 million metric tons of corn and still honor its policy of growing 95% of the grain it consumes.
In July, the chairman of Chinese consulting firm Shanghai JC Intelligence Co. gave a speech to the U.S. Grains Council, a Washington-based trade group, projecting that China might need to annually import 15 million tons, or 591 million bushels, by 2015.‹
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