China Corn Demand Set to Rise 41% By 2023

12:00PM May 16, 2014
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If China’s future corn demand is in the ballpark of what some experts predict, import growth—mostly from the U.S.—will be explosive. That’s good news for farmers putting strategies in place to ramp up production.

China’s corn demand will increase 41% by 2023-24, according to a new report from USDA’s Economic Research Service. Department economists say while China, the world’s No. 2 producer, will increase corn production because of acreage and yield increases, its consumption will increase at an even faster clip. The country will need to import 866 million bu., nearly half of this year’s estimated U.S. corn exports of 1.9 billion bu.

And import needs could far eclipse this rosy forecast. Even though USDA has pegged Chinese yields to increase annually by 1.86 bu. per acre over 10 years—in line with projected U.S. yield gains of 2 bu. per acre and up from earlier projections of 1.2 bu. per acre—those yields comparatively are far lower than those found in the U.S. on roughly the same production area. By 2023, the divide between corn production and consumption in China could double if output growth comes exclusively from yield gains. Yield growth at historical rates would result in an even wider gap.

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Yet dramatic increases in imports are not automatic, ERS economists say. Slowing income growth, rising prices and factors such as livestock disease could temper corn demand.

That happened last year when Chinese feed production contracted 1.8%, reversing a growth pattern of 8% to 10% in recent years. Weak demand for corn and a record 2013 harvest forced a Chinese corn glut that prompted authorities to launch an aggressive corn-stockpiling program to prevent prices from falling. Government edicts required officials to cut back on banqueting, and sluggish consumer spending crimped meat demand. Compounding meat-demand problems were avian influenza, low hog prices, excess capacity and negative publicity over thousands of dead pigs discovered floating in Shanghai’s major river.

"China’s demand for corn is expected to resume its strong growth as the effects of these incidents dissipate in futures years," ERS economists say.

Policy changes would be required for a substantial uptick in Chinese corn imports. For instance, USDA’s projected corn exports exceed the nation’s annual 7.2 million metric ton (MMT) tariff rate quota, a figure set when China joined the WTO. Imports within the quota are subject to a low 1% tariff, and over-quota corn imports are assessed a prohibitive 65% tariff. Bullish USDA projections presume that China would expand the quota or introduce a sliding scale tariff mechanism, as it has done for cotton, to accommodate demand for imported corn.

If China does not adjust tariff rate quotas, robust demand could drive domestic corn prices much higher, bidding land away from other crops to boost corn output, ERS says. But high corn prices would undermine competitiveness of domestic corn-using industries, and higher corn prices would also raise meat prices, slowing corn consumption and prompting a shift to meat imports.

In reality, China is most likely to buy more corn, and that’s good news for the U.S. From 2010-12, the U.S. accounted for 97% of China’s corn imports, and it will remain a key supplier, ERS economists say. Other countries including Ukraine, Argentina and Brazil will likely expand sales to China as well.

"As China’s demand for corn imports grows, the U.S. and other exporting countries will need to boost production to prevent world prices from rising sharply," ERS says. "Sustained growth in corn yields in the U.S. and other countries will be critical to ensuring that corn is available to meet China’s rising demand. U.S. farmers produce higher corn yields than Chinese farms with less chemical fertilizer. Thus, meeting Chinese demand with U.S. corn conserves resources."

Click here for more details on future Chinese corn imports, comparisons of U.S. and China corn production, and analysis of the accuracy of Chinese corn data.