ST. LOUIS, Mo. — Corn Belt fields drying out over the holiday weekend returned yield optimism to producers – and, if this season’s weather continues favoring corn yields, market watchers will be all ears for market news from China, where at least two factors could combine to reduce its demand for U.S. crop.
One factor is China’s greater domestic corn supply, from a bumper crop and large amounts of corn stocks there that could be released by its government. Another factor is ongoing Chinese import restrictions on corn and corn byproducts containing some biotech traits, including restrictions on U.S. dried distiller’s grain solubles (DDGS).
The USDA forecasts China’s corn crop for this marketing year at 220 million metric tons. "This is 1 percent higher than the previous year, as higher corn profits pull acreage from alternative crops, such as cotton in northern China and soybeans in the northeast," reported the USDA June grains outlook.
Changes in Chinese crop acreage toward corn have occurred since 1985, as Chinese producers are now less restricted by policy in their choice of crops, noted a recent research report by Ekaterina Vorotnikova, a Ph.D. student in the University of Florida’s Food and Resource Economics Department.
China’s corn stockpile – the world’s largest – ballooned in recent years as the government purchased domestic production, allowing Chinese livestock feeders and grain processors to buy corn from lower-cost global producers, such as the United States.
This policy is likely to change, according to grain industry sources cited in a recent Reuters report; the impact is yet uncertain.
But this is certain: Chinese feed buyers are price-sensitive, with corn purchases increasing as the relative price of soy increases. A paper presented at this year’s Southern Agricultural Economics Assoc. annual meeting in Dallas reported China has the most elastic demand for U.S. corn among the three major importers – China, Japan and the European Union.
That means on average, lower global corn prices would result in more Chinese corn imports.
Other factors, like policy, may cancel that preference. China has rejected corn and DDGS containing Syngenta MIR162, a biotech trait not yet approved by its government for import. According to the U.S. Grains Council (USGC), Chinese traders "have been told unofficially that no new DDGS import permits will be issued for the time being."
While China is expected to subject DDGS to more stringent biotech inspection, existing import permits for DDGS are still valid. And Chinese importers remain willing to accept the financial risk that DDGS, imported under existing permits, may not pass inspection at the port of entry, according to the USGC.
Lower demand from China could contribute to lower global corn prices, but lower futures markets appear already anticipating a bumper Corn Belt crop. "Corn is tasseling early all across the state," said University of Missouri extension corn specialist Brent Myers, in a teleconference last week. "It’s an awesome year for growing corn."