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Campus Tour: Can More China Demand Hurt Corn Prices?

November 4, 2010

The agriculture world is focused on China for market development and soybeans have long been the leading product for this demand. Corn has entered the picture this marketing year and that is bringing corn prices higher, but the agriculture world needs to be careful to not depend on that too much, says Iowa State University Grain Marketing Specialist Chad Hart.

Hart looks back to when he entered graduate school at Iowa State and began working for the Food and Agriculture Policy Institute (FAPRI) in 1991. At that time, FAPRI predicted China would be a net importer of corn within five years. If that, what seems to be a perpetual prediction, comes to fruition, it could spell hard times for livestock producers and erosion of corn's traditionally largest customers. 

"I can grab their 2010 book today and it still says ‘in five years, China will be a net importer of corn,’" he says. "We know it’s a massive market for corn. You’re looking at 1.3 billion people. You’re looking at a hog industry that’s six times the size of ours. They need a lot of corn. But what’s China’s been willing to do over the past several decades is that’s the market they are willing to defend. They try to produce enough corn to be self sufficient. In most year’s they pull it off. Last year they didn't.

"They had a drought hit their major corn producing region and it pulled their major corn producing region down about 7%. They went on the world market and they bought corn from us. First time they bought from us in over a decade. They are very leery of getting out there on the world market. It’s a market we’d like to cultivate. We see great potential there. It’s a question of whether China’s productive capacity for corn can keep up with it’s insatiable demand. "

The question still remains how big the corn market can be for China. If that continues to grow like the market has in soybeans, corn prices could reach unheard of levels. "Let's go back an look at soybeans versus where we were 10 years ago. Ten years ago, China was in the market, but barely...maybe 80 million bushels. Today, they're at 700 million and we're not two months into the marketing year. They have had a tremendous impact on the market. If they do that on corn, imagine where we'd be today. This idea of $6.00 bu./corn, we'd be way past that."

 

However, significant increases in corn price could have some detrimental impacts to the market, he says. "You know certain segments of your demand are price sensitive. Livestock is the one longer term that we're really worried about. We've already seen them go through some massive financial hits over the last five years. Let's face it, we they cannot hold on that long unless we continue to talk about record prices for them." 

 

As far as China is concerned, soybeans remain the leading indicator, he says. With 60% of the U.S. soybean crop being exported to that country, the market is showing no signs of slowing down. Already into this marketing year that started October 1 is already 2/3 of the way to a third record year for exports in as many years. USDA released its export reports Thursday morning and it shows more exports on the horizon.

"Right now we’re running well above the pace of last year. We’re about a billion bushels into the soybean exports already. To set a record, we only need about 500 million bu. more. We’re well on our way to setting another record in soybean export. That’s on top of ’08 was a record and ’09 was a record. We continue to build that pace up.

"In this case, corn gets to tag along on this side. We’ve sold some corn into China, not a lot, but we’re waiting to see if we get a little more in there."

 

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