Replies to post #100997 on Biotech Values

[DewDiligence]

(MON)—China Steps Up Imports of US Corn

http://online.wsj.com/article/SB10001424052748704657504575411290872015132.html

›AUGUST 5, 2010
By BRIAN SPEGELE And SCOTT KILMAN

China's first big purchases of U.S. corn in more than a decade have triggered a debate over whether exports of America's biggest crop are entering a new golden era. But the one party that could potentially settle the question—China's government—is hardly talking.

Excitement was sparked in June when a ship loaded with U.S. corn arrived at the port of Longkou on China's eastern coast—the first ship fully loaded with U.S. corn to dock in China in about 15 years. It was followed by four more.

China has now imported about 1.2 million metric tons of corn this year from the U.S., the world's largest producer, compared to total imports from all countries of less than 100,000 tons in previous years.

Farmers, traders, and agricultural economists are divided over the implications of this surge. Some see it as the arrival of a long-anticipated age of big corn exports to China to feed its increasingly wealthy population. Others think it's probably a short-term blip caused by recent droughts.

"Whatever is happening, this year is definitely quite different from anything" occurring in recent years, says Jay O'Neil, an economist with Kansas State University's International Grains Program.

He added that China's recent corn imports "means there are fewer countries supplying the needs of a growing world and the potential for crop production shortfalls is a greater risk to everyone." The change "obviously leads to more uncertainty in the world commodity markets and tends to lead to higher commodity prices and greater price volatility."

Predicting China's corn demand is complicated by the Chinese government's intense secrecy. The Communist Party has long considered grain self-sufficiency a core element of national security, and the leadership reaffirmed earlier this year that China aims to produce at least 95% of the grain it consumes through 2020. But details of the policy are closely guarded.

No one outside the Chinese government is certain whether the shipments allowed in this year are temporary or indicate a longer-term shift. The government keeps the size of its grain reserves secret, and some observers question the accuracy of the statistics it does publish on production and consumption, says a western industry official who watches Chinese grain policy closely.

The confusion over corn is indicative of a larger clash between China's growing global economic clout and government practices that in some respects have changed little during three decades of market reforms. China is expected to surpass Japan this year as the world's second largest economy after the U.S., but major policies are still set in secret by a small group of party leaders. Outside experts frequently complain about the lack of transparency in official data, and uncertainty over Beijing's policies has roiled global markets for other commodities like oil.

Seeking greater clarity can be risky: vague state secrets laws have been used to imprison some analysts for collecting commercial information that China deems sensitive. Last month, U.S. geologist Xue Feng was sentenced to eight years in prison for his research on the location of oil wells.

China's Ministry of Agriculture declined an interview request on corn policy, saying the subject is too sensitive. The Ministry of Commerce and the National Development Reform Commission, China's main economic planning agency, also declined interview requests. Even Western experts in China refused to discuss the issue publicly.

Reflecting the sensitive nature of China's corn situation, the Obama administration has purposefully said little about the recent U.S. shipments to China even though the administration has made expanding exports of U.S. goods a big part of its economic strategy.

In a rare statement on the subject on its website last week, the NDRC played down the recent corn imports. It said the recent imports were driven by higher domestic prices for corn, but stressed that they wouldn't hurt Chinese corn farmers and that China's grain reserves are adequate. The statement didn't address how long the recent influx of corn imports would last.

Most analysts agree China's corn supplies have been strained by the appetite of its growing middle class, who consume increasing amounts of pork, milk and eggs from animals that eat corn feed—as well as colas and other soft drinks that use corn-based sweeteners. Severe droughts across China's northeastern corn belt over the past two years exacerbated supply concerns.

China used to be a major net exporter of corn, competing with the U.S., but its exports fell to just 172,000 tons in 2009 from 15.2 millions tons in 2003, according to data from the U.S. Department of Agriculture.

Some analysts are now projecting China could import as much as it used to export. At a meeting last month of the U.S. Grains Council, a Washington-based industry group, the chairman of Chinese consulting firm Shanghai JC Intelligence Co. gave a speech projecting that China might need to import 5.8 million tons next year and 15 million tons by 2015. The chairman, Hanver Li, heralded "a new era of China importing corn," according to the council's website.

Asked to explain the projections, a JC Intelligence official said the subject is too sensitive to discuss.‹

[DewDiligence]

These comments on the ag element of The Global Demographic Tailwind by Felix Zulauf during the annual Barron’s roundtable echo those of prior posts on this board. MON and DE are my two favorite plays on this theme. (See #msg-54541553, #msg-57647058, and #msg-53059927 for related stories.)

http://online.barrons.com/article/SB50001424052970204853904576090250370348320.html

In the U.S., annual consumption of meat is 130 kilograms (286 pounds) per capita. In the European Union, it is about 100 kilos. In China it is 55 kilos, and it was 39 kilos 10 years ago. In India it is at only seven kilos, so there is a long way to go [a significant portion of India is vegetarin, however]. In 1980, Taiwan was at a development stage similar to China's today. Since then, Taiwanese meat consumption per capita has doubled from 43 kilos to more than 90 kilos. By 2030, China's meat consumption could be 85 to 90 kilos.

It takes about six kilos of grain to produce one kilo of beef. [The ratio for chicken and other forms of meat is at least 2x.]. On the supply side, available land is diminishing. We can't get water to some land. We are diverting other land to production for biofuels [e.g. 40% of the US corn crop is used to make ethanol].

The situation is compounded by La Niña, a weather phenomenon that cools the Pacific, disrupting harvests. Combine that with constant volcanic eruptions in Eastern Russia, which affect the Arctic, leading to more flooding in Southeast Asia and Australia, which is occurring now. It will lead to stronger monsoons in India and droughts in Latin America, Russia and the Ukraine, and potentially the Northern U.S. We can expect below-average harvests in the Southern Hemisphere, and potentially in the Northern. All these factors support the continuation of the bull cycle in agricultural commodities.