By MICHELE F. MIHALJEVICH
Indiana Correspondent

BOYNTON BEACH, Fla. — Drought in some parts of Chinas corn-producing regions could affect the U.S. market, especially if China is forced to import corn to make up for shortfalls, a financial advisor said last week.

The dry weather could lead to a reduction of at least 12 percent from last year in the nation’s corn crop, said Shawn Hackett, president of Boynton Beach-based Hackett Financial Advisors, Inc. China could produce about 140 million metric tons (MMT) of corn, with the nation’s demand expected to be at least 160 MMT, Hackett said.

Chinas corn crop could be the country’s smallest since 2005, he said. “If they need to draw down to make up for losses, it’s reasonable they would want to bring that back up,” said Hackett, publisher of the Hackett Money Flow Report. “They could want to get their ending stocks back up to where they’re comfortable.”
If China returned to the market after being out of it for so long, that would show how concerned it is, he said.

“When this story becomes a real factor in the pricing of the market is when they actually go out and buy corn. But if they do stay out of the market, they’ll be eating out of their supply,” he added.
China’s corn inventory could be reduced from 800 million to 1 billion bushels, Hackett said.

“If those numbers are correct, they might need to buy 500 (million) to 800 million bushels to get their ending stocks back up. If they took 800 million bushels off our hands, that would bring a profound change,” he said.

“Will this mean $8 corn? No. Will this mean $6 corn? No. But it might take us back to the $4 to $5 pricing we saw in June. Which, compared to today’s price of about $3, it’s a significant improvement.”

Because the United States and China are responsible for about 70 percent of the world’s production of corn, when one has a small crop, it will affect the other, he said.

Dry weather a concern
The northeastern and southwestern areas of China’s prime corn-growing regions have been affected by dry weather, Hackett said.
“This (dry weather) developed over time, not in one day or one week. It’s been hot and dry, and all of a sudden you get to the point of permanent reduction in yield that can’t be recovered. They’ve finally gotten to that point,” he explained.

“The drought has persisted through the last chance to bail the crop out.

It’s pretty clear that in the prime growing regions the drought is one of the worst in a long period.”

Key areas of Chinas corn growing regions did see dry weather during critical moisture-sensitive stages of development, said Brian Morris, agricultural meteorologist and China analyst for the USDA.
“They tend to throw around the term ‘drought’ fairly easily, and that can be very confusing,” Morris said. “But I would not consider it a drought based on U.S. drought standards.”

The northeastern provinces of Jilin and Liaoning are the areas of concern, Morris said. While Inner Mongolia has also seen dry weather, crops there are irrigated.

“In Jilin and Liaoning, they saw little to any rainfall from July 23 through August 15,” he said. “They were about three inches down. Because planting had been delayed in the spring, or they had to replant, this dryness hit just at the worst time, when moisture was critical.

“But this was a short-term dryness problem. After the 15th, they started to receive significant amounts of rainfall.”

The growing seasons and temperatures in the provinces are similar to those of the Dakotas, he said.

Corn crop projections vary
China’s government does seem to be concerned about the potential for drought, said Cary B. Sifferath, China senior director for the U.S. Grains Council (USGC).

The country’s premier, Wen Jiabao, visited some of the areas hit by drought in late August, he said. As of Sept. 9, the country had made no official announcement it will buy or import corn from any origin.

In a report last month, China’s National Grains and Oils Information Center projected a crop of 166.5 MMT, a slight increase over last year’s 165.9 MMT, Sifferath said.

Other projections aren’t quite as optimistic, he added.
“There are all kinds of different people and companies making projections about Chinese corn production this year, with talk of corn production being down 5 percent, or 10 percent, or some even in the 15 to 20 percent range and thus, giving total corn production numbers in the 145 to 155 MMT range,” he said.

“How accurate are these projections is anyone’s guess. Even in a good year, it is difficult to pinpoint accurate corn production numbers in China.”

The USDAs World Agricultural Supply and Demand Estimates report, released last Friday, projects China will see corn production of 160 MMT, down from last month’s projection of 162.5 MMT.
The report attributes the decline to extended summer dryness in western portions of the northeastern growing region.

The USGC is touring China to make its own corn production projections and should be in the northeastern area later this month, Sifferath said.

China has been buying relatively large quantities of dried distillers grains (DDG), said Darrel Good, an agricultural economist at the University of Illinois.

“It’s the economics of containers,” he said. “They ship a lot of stuff to the U.S. and those containers have to go back to China.”

China is buying distillers dried grains for feed to fill in the gap, Hackett said. “That’s where they’ve showed their hand. How long until they have to buy corn? This is the cheapest and most non-threatening way to buy and not disrupt the market.” Despite the potential for a small crop, Good doesn’t see China importing corn. “They’ve used last year’s big crop to build inventory.

But if their crop is small enough, that could limit the amount of corn they have available for export,” he said.

Hackett said the attention of those in agriculture will probably stay on the projected large corn crop in the U.S. until China makes a move to buy corn.

“It could happen soon, overnight, or in the next month or so.
They could be saying, ‘Lets just play the waiting game a little bit.’ They’re content waiting. We’d normally be harvesting now but we’re not, as the crop is late maturing,” he said.

Current pricing in Chicago is probably not reflecting any potential corn imports from China, Sifferath said.

“If China were to import corn, it would start to have an effect on corn prices in Chicago and thus back to the farmer level,” he explained.