Is China Set To Become A Long-Term Corn Importer?

The Chinese government's weekly corn auction, being held in an attempt to cool rising domestic prices, was almost fully subscribed again Tuesday.

Almost all of the corn of offer was sold, with 979,600 MT of the 993,300 MT on offer in the north of the country finding buyers. Of the 583,400 MT on offer in the south 541,400 MT was sold. That represents an uptake of 98.6% and 92.8% respectively.

The Chinese appetite for corn clearly continues unabated.

The country has a meat consumption per capita of only half that of the US, yet still slaughters more than 700 million pigs a year. Pork consumption has doubled in the past ten years, whilst chicken and beef consumption is also rising rapidly.

Beef consumption in China is up 300% from 10 years ago, yet currently it is only one-tenth of that in developed countries.

A government-led so-called "safe meat" Westernised drive away from the widespread feeding swill and leftovers is also underway. Whilst the global feed market is rising by around 2% annually, that means that the market in China increased by 24% alone last year.

China simply can't increase it's own domestic grain and oilseed production to cope with these kind of levels of expansion. In a country prone to weather problems and climatic extremes, where the soil has been plundered for maximum output from minimal input for years, crop production looks (at best) set to become increasingly erratic. At worst it will start to decline, some would argue it already has.

There is already talk of this season's corn crop being lower again than last season, with drought delaying plantings, shortening the growing cycle and cutting yields. Wheat production also looks to be tailing off, and this season's rapeseed crop could be down as much as 25% according to Shanghai JC Intelligence Co.

As the population continues to grow, as it surely will, AND this trend towards increased per capita meat consumption also expands along with the pursuit of "safe meat" we are potentially looking at a dramatic surge in demand for feed.

For China then there are three options/stages:

1) Increase production
2) Utilise existing reserves
3) Import

With home-grown grains production seemingly having reached a plateau, once domestic reserves are used up all of this extra feed requirement will need to be imported.

It seems to me that we have reached stage two already and are currently starting to implement stage three. Breaking news being reported on Reuters today suggests that the Chinese government are all set to issue import licences for an additional 4-5 MMT of corn in 2010, on top of the 3.4 MMT that has already been approved.

That completely re-writes the USDA's current global corn balance sheet (only released a fortnight ago) which has China down to import just 300,000 MT of corn in 2009/10 and a mere 100,000 MT in 2010/11.