China’s Corn-Market Pop Could Lift American Farmers
Date: Thursday, July 30, 2020
Source: The Wall Street Journal
China has already stepped up purchases of American farm goods, and forecasts record corn imports overall
Corn prices in China are soaring, which could be good news for American farmers.
As China’s formerly bloated stockpiles shrink, prices have climbed to a five-year high. Since January, front-month corn futures on the Dalian Commodity Exchange have risen 27% to about 2,306 yuan ($329) a metric ton, a level last seen in the summer of 2015.
Back in 2016, the Chinese government ended a long-running price-guarantee program for corn farmers that had led to the accumulation of massive amounts of the grain. Withdrawing the supports caused Chinese corn prices to plunge. Low prices and the lingering oversupply led farmers to cut back production.
China uses corn primarily for animal feed, but low domestic prices over the past four years caused it to find other uses as well, such as for cooking starch. Still, it has taken years to significantly reduce stockpiles and allow prices to recover. But with prices now soaring, industry analysts say they expect China to step up imports of corn and other grains, such as sorghum and barley, to help meet demand.
That would benefit U.S. grain farmers, suffering from falling prices this year. The coronavirus pandemic has damped sales, and the market is further depressed by expectations of a larger corn crop later this year, thanks to farmers’ increasing the amount they planted. The U.S. harvest typically begins in September.
China has already stepped up purchases of American farm goods this year, looking to hit purchasing targets laid out in the first phase of the U.S.-China trade deal signed in January.
“China is going to have to buy more grains, and the trade deal with the U.S. shoehorns that demand toward the U.S.,” said Tobin Gorey, agri-strategy director at Commonwealth Bank of Australia. That is providing some support to U.S. prices, he added, though not enough to overcome the effect of the looming large new crop.
China bought 2.1 million metric tons of corn through July 16, up from 315 thousand metric tons in the same period last year, according to the U.S. Department of Agriculture. The world’s most populous nation and No. 2 economy is also the second-largest producer and consumer of corn after the U.S.
On July 10, China’s Ministry of Agriculture and Rural Affairs said it expected to import six million metric tons of corn in the 12 months ending this September. That was 50% higher than its earlier forecasts and would represent the highest total ever.
Chinese authorities said the jump partly reflects efforts to fulfill trade-deal commitments. But analysts say imports will also help relieve corn shortages emerging in parts of the country and hold down prices for users such as ethanol producers, struggling to make a profit. And demand for feed is rising as farms expand hog herds that were decimated by last year’s epidemic of African swine fever.
China’s own corn production is expected to rise slightly but isn’t enough to meet the country’s needs. Planting was hampered partly by a rise in costs—notably labor, pesticides and fertilizers—as Covid-19 broke out earlier in the year.
Another reason China is buying more corn from abroad, said Michael Underhill, chief investment officer at Wisconsin-based asset manager Capital Innovations, whose investments include agricultural businesses: It is a bargain. Import corn prices are currently around 600 yuan ($86) a metric ton lower than domestic corn prices in China.