Could China's Decision to Sell Corn Stockpiles Hit Soybean Demand?

August 10, 2016 03:05 PM

Shrinking demand by China for corn and corn substitute imports could also decrease demand for soybeans, according to a report by Rabobank, a Dutch banking and financial services firm.

The slumping demand is the result of China’s decision in March to end its corn stockpiling program, decrease its huge corn stocks and reduce corn acres by 13% to 33.5 million hectares, the report observed.

The effect of this new Chinese policy could spill over into soybean imports, according to the report.

“Facing declining corn prices and surging soybean prices, Chinese feed mills could possibly change their formula, using more energy grains and protein meal,” the report noted.  “If this occurs, the growth of Chinese soybean imports could also slow,” it cautioned.

Imports of corn substitutes will slump by 50% “in the coming years,” according to the report. In recent months, imports of corn substitutes declined as many feed mills switched back to cheaper domestic corn, instead of using imported feed grains, the report observed.

As China seeks ways to unload its corn, do other countries have to worry about China exporting corn? Not yet, unless they are subsidized by China, according to the report.

Why? Because China corn is not competitive at current prices with competitors.

Without the option of exporting its corn, it could take China years to get rid of the entire surplus, the report said.  Increasing ethanol production would be controversial because of land and water scarcity in China. The 2015/16 corn carryover stock is projected to reach more than 250 million metric tons, which is almost 1.4 times annual consumption,  the report noted.

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