Global inventory levels of corn are nearing record lows, driven by a disappointing U.S. corn production in 2010, one of the strongest La Nina weather patterns in the last 50 years, higher than expected ethanol use, and strong demand from emerging markets. As we look towards our outlook for corn in 2011, our continued focus is China’s insatiable demand and short supply of corn.
Rapid population and economic growth have driven China’s growing demand for grains. Economists have long shown that as GDP rises and a middle class develops, consumption of protein also rises. The USDA estimates that of every new dollar spent in China, 40% is allocated to food.
2010 was a turning point for China as the country announced it would no longer be self-sufficient in corn production and would turn to imports to meet demand. Shanghai JC estimates that China will import roughly 6 million tons of corn in 2011 and up to 15 million tons in 2014. Other analysts estimate China will import up to 8 million tons of corn in 2011, which is a roughly 600% increase from 2010’s Chinese imports of 1.3 million tons.
We see China’s transition to a net importer of corn very similar to China’s transition to becoming a net importer of soybeans. Before 1995, China was a net exporter of soybeans but by 2010, it is the world’s largest soybean importer and imported more than 57 million tons of soybeans.
To ease domestic prices, the Chinese government has been selling reserves. In 2010, the government sold 26.1 million tons of corn from reserves and sold 9.6 million tons in 2009. The exact amount of government supplies is unknown, but the government can only temper prices for so long. Imports of corn will be the primary solution to solve the shortfall.
Where will China import all this corn from? The first place they will turn to is the U.S., which is the world’s largest corn exporter, accounting for roughly 60% of global corn exports in 2009. Argentina and Brazil, the second largest exporters, only account for roughly 10% of global exports each.
If China imports 8 million tons of corn in 2011 and the U.S. maintains its 60% market share, this would translate to an incremental 170 million bushels of corn being imported from the U.S.
The USDA currently estimates ending stocks of corn at 745 million bushels. If we subtract an additional 170 million bushels for Chinese imports, we are getting dangerously close to zero. Any unexpected surprises from the Chinese in 2010 will have a big impact on the world’s corn supply and prices.
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