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Bet on China

April 2, 2014
TP 014 T14110 b

Emerging as the third largest U.S. corn customer but a wild card in 2014 

By Ed Clark and Sara Schafer

No quick solution was expected on the stalemate over China’s ban on GMO corn from the U.S. in mid-March. Despite cancellations of nearly 35.4 million bushels of booked sales, China has quietly emerged as the No. 3 destination for U.S. corn. (China imports more corn from the U.S. than any other competitor.) 

The long term looks even brighter. From 2013 to 2022, USDA projects China’s corn imports are going to more than triple. "Chinese buying is the demand wild card for 2014," says Sterling Liddell, senior vice president, food and agribusiness research with Rabobank. 

The current USDA projection of 197 million bushels would likely support prices near $4.20 to $4.30 per bushel, according to a Rabobank analysis. "If imports from the U.S. drop much below that (due to the GMO dispute), prices could drop to $4 per bushel or lower." 

Reports suggest the GMO dispute might be a smoke screen to protect Chinese corn producers in the wake of growing supplies and a short-term waning of demand because of bird flu and declining hog numbers. 

"Short-term imports will be constrained, but the long term likely will show significant Chinese import growth in feed grains," says Brian Lohmar, U.S. Grains Council director in China. 

Imports to Triple. The latest long-term USDA forecast points to Chinese corn imports of 236 million bushels in 2014/15. From there, exports steadily ratchet up to reach 866 million in 2023. 

The challenge for the Chinese market is the short term, and not just its issues with GMO corn. Perhaps most important is whether China is beginning to transition to more corn imports, paving the way for a trajectory similar to soybeans.

While some see nothing but good news on Chinese corn imports, others are more circumspect. In recent decades, China, which has the world’s largest corn acreage and is the No. 2 corn producer—has vacillated from being an importer and exporter, notes Frayne Olson, ag economist at North Dakota State University. As recent as 2003, China was responsible for 9.6% of the world’s corn exports. 

Although Chinese policy is one of importing the lion’s share of its soybean needs from the U.S. and South America, it remains committed to self-sufficiency in feed grains, Olson says. In addition, once GMO corn seed is approved—most think it’s not a matter of if but when—China could see a yield bump, he adds.

For example, when China approved Bt cotton in 1996, yields rose 50% to 60%, although not immediately. No one knows the yield impact of GMO corn, but it could go a long way to supplying China’s corn needs, potentially turning it from a customer to competitor, Olson notes.

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FEATURED IN: Top Producer - April 2014
RELATED TOPICS: Corn, USDA, Exports, Global Markets

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