China's Dry Weather
Sep 18, 2009
China’s Dry Weather:
What impact could the drier than average China weather have on corn and soybean production for 2009? As many as five weeks ago, China agriculture officials were becoming a bit more vocal that its soybean production in the southeastern region was at risk because of dry weather. The initial reaction by international suppliers of soybeans were less than optimistic of increased year on year exports as much of the regions key soybean and corn production remains in the extreme northeast. Five weeks ago, Allendale Inc viewed the vegetative health maps for China and simply could not understand the alarm for southeast China but was more concerned about the vegetative health stress within the northeast.
Fast forward five weeks and on September 17th, China’s largest grain trading company, COFCO announced it forecast 2009 corn production to fall 7.5% year on year with its latest estimate of 148 million tonnes because of its northeast dry weather development, soybean production off 3-5 MMT. In nearly the same breath a China Central Government agriculture ministry official made an announcement it is considering a 95 cent per bushel export subsidy for corn in order to scale back the government reserves of 36 million tonnes with total corn stocks estimated of 55 million tonnes. Think about this just for a moment, exporting corn when weather is going to reduce production, when for the most recent six years your average corn production is only 3% more than consumption? At present total world end stocks of corn for the 2009-10 marketing year are 139.12 million metric tonnes of which China has possession of 40%!
If there is a single country which is well positioned against an adverse weather scenario, it is without a doubt China. Please view the chart to witness how China end stocks of corn, wheat, rice and soybeans compare to world stocks. While China holds 40% of the world corn stocks, they hold 33% of the world wheat stocks and a hefty 52% of the world rice stocks. What don’t they hold are a thin 15% of the world soybean stocks. China remains flush and building stocks of starch based crops but not protein based soybeans. It is Brazil and Argentina which hold the lion’s share of soybean stocks and possibly most surprising is how China for the second consecutive marketing year is projected to have larger end stocks than the United States.
Recent trade tariff developments between the United States and China now emit China’s posturing/saber rattling-threatening the US with talk of reduced soybean imports if the US does not reduce the recently raised import tariff on China tires. In the most recent 24 hours, China announced the likelihood of reduced US soybean imports as they view the US as unfairly dumping highly subsidized soybeans into China and yet only hours later USDA announced a fresh new crop US soybean sale to China, who called who?.
Allendale Inc suggest if there is a single crop which China has little negotiating room until fresh new crop S America supplies become available in the spring of 2010, it is soybeans. IF Brazil and Argentina are able to plant, pollinate, produce and harvest large soybean crops, then China may hold a bargaining chip, until that time. China is likely to continue to shop for protein/vegoil needs from the only fairly priced store in the world, the US.
Considering the calendar of developments as well as cash-futures market action, Allendale Inc is advising the odds are still in favor of moving “the lack of carry” soybeans from the field to the pipeline and continue to collect the storage revenue from the full carry wheat and corn crops.
What are your thoughts with regards China’s dry weather, is it real or merely an attempt to rally its corn price values? What crop is China most import dependent year upon year? Is there a potential for China to limit or cancel US soybeans before S America harvest its crop? How do these developments impact your 2009-10 marketing plans?
We welcome your questions and comments.........Joe Victor
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