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Record-High Chinese Corn Prices Favor U.S. Exports

March 26, 2012
By: Fran Howard, AgWeb.com Contributing Writer
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With corn prices at record highs in China, U.S. corn is priced right for export to that country. If China continues to buy U.S corn, U.S. corn exports to the world’s most populous country could be on target to hit a projected 5 million metric tons. While that number might seem large compared to what China had been buying, it still only accounts for about 1 percent of U.S. corn production.

U.S. exports of corn to China for the current marketing year totaled nearly 2.8 million metric tons as of March 15, up substantially from year-ago levels of 313,700 metric tons, according to USDA’s Foreign Agricultural Service (FAS).

China ranks third in U.S. corn purchases, accounting for more than 12 percent of all export sales, behind Japan (6.9 million metric tons) and Mexico (5.45 million tons). Total U.S. exports of corn, however, are running slightly behind last year with accumulated sales as of March 15 at nearly 22.6 million metric tons, compared with corn exports of more than 23.4 million metric tons a year ago.


"Ten years ago, China exported as much as 500 million bushels, or 12 million metric tons of corn," says Bill Lapp, president of Advanced Economic Solutions, Omaha. "This year, China is expected to import 5 million metric tons of corn, or 240 million bushels, from the United States. China is clearly transitioning to becoming an importer or corn, but to what degree, we don’t know."


China is very wary about having any type of food shortage that could cause social unrest. "In the past, China has held large-scale reserves to prevent problems," says Lapp. "But we don’t know what type of reserve the government has today that it could release if needed, but it appears to be small." Another unknown factor is what type of on-farm reserves are being held by Chinese farmers. "Each farm has reserves. An on-farm reserve is like a 401K for the farmer," he adds.


With Chinese corn prices increasing relative to U.S. prices, economics favor China importing more corn. "But that doesn’t mean it will happen," says Lapp. China has also been importing dried distillers grains to be used as a mid-protein supplement replacing a portion of both corn and soybean meal in livestock rations.


In a recent study commissioned by the U.S. Grains Council, JCI, a Chinese market analysis firm, reported that China will restrict production of ethanol and dried distiller’s grains with solubles (DDGS) to no more than 5 percent annual growth over the next five years. Assuming DDGS are priced appropriately to corn and soybean meal, JCI projects that China’s imports of DDGS will grow steadily, reaching 6 million metric tons in 2016, which will represent 42 percent of the country’s total use.

 

China’s activity as a corn importer has helped support U.S. corn prices by removing some supply from the market, notes Lapp, but often people underestimate the Chinese government’s ability to fuel supply gains by creating incentives for Chinese farmers.


The country’s corn production is estimated at 191.75 million metric tons for the 2011-12 marketing year, compared with 177.25 million metric tons in 2010-11, according to USDA’s latest estimate. Estimates for Chinese corn prices in mid-March were nearing $10/bushel (U.S.).

Soybean exports to China are far larger than corn exports, but those have slowed compared with a year ago. Marketing year to date, China, which is the largest customer of U.S. beans, had purchased 18.2 million metric tons of soybeans from U.S. suppliers. Last year at this time, soybean sales to China were running higher at nearly 22.3 million metric tons. Total U.S. export sales to all countries were also higher last year at this time at 33.4 million metric tons, compared with 25.7 million metric tons as of March 15, 2012, according to FAS.

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