KANSAS CITY, MISSOURI, U.S. — The litany of predictions that China will be a leading consumer of U.S. corn even as world prices stay historically high appears to be a case of wish fulfillment on the part of corn bulls. Not to say that China isn’t quickly increasing the amount of corn it uses to produce chicken and pork for its protein-hungry population.
To accommodate the 7% annual growth in domestic corn consumption, China has been working to raise record crops, to find cheaper substitutes and to trade with a savvy eye to the best values, switching to different suppliers when prices from a specific country look too high.
"People have tried to say China will be importing very large amounts of corn for the last decade," said Dan Basse, president of AgResource Co. in Chicago, Illinois, U.S., "but it hasn’t always been the case."
Darrel Good, professor of agriculture and consumer economics at the University of Illinois, echoed the sentiment.
"I expect the growth in imports to be slower than some of the more optimistic projections since China carries large reserves of corn and continues to increase resources devoted to corn production," he said, adding that he sees domestic production "expanded as newer hybrids are adopted and as fertilizer use continues to expand."
The perennial argument is that the increasingly prosperous population of China wants a higher-protein diet and that means more corn in animal feed. While the general trend is true, the dietary preferences have failed to translate into an explosion of corn imports from the U.S. or any other nation, U.S. Department of Agriculture data show. Instead, amounts of corn imported by China from all countries have an irregular pattern of increases and decreases.
The most recent World Agricultural Supply and Demand Estimates (WASDE) released Jan. 11 projected total corn imports to China for 2012-13 at 2 million tonnes, the same as in December. The data do not break out how much of that amount originated in the U.S., but it was sure to be the large majority, Dr. Good said, although China is known to be a buyer of corn from other countries as well.
China was reported to have imported a total of 980,000 tonnes of corn from all sources in 2010-11. For 2011-12, the WASDE estimate jumped to 5.23 million tonnes. But that did not translate into a firm upward trajectory.
In August 2012, when the U.S. was experiencing the worst drought in 50 years and corn prices hovered around $8 a bushel, the August WASDE projected Chinese corn imports fell to 2 million tonnes from an estimate of 5 million tonnes made in July 2012.
That total — 2 million tonnes — remained in place in the most recent WASDE released Jan. 11 and was viewed as being the majority U.S. corn.
Experts who follow Chinese import behavior said a number of factors seem to determine the level of importation of corn from the U.S. as well as from competing nations.
The first consideration is price. When it comes to corn, the Chinese appear to be interested in getting a good deal, which doesn’t seem to drive their soybean buying nearly as much since soy is seen as an indispensable ingredient in the Chinese diet.
Rich Nelson, chief strategist at Allendale, Inc., Chicago, said China would like to import corn from Argentina because its price is 60¢ a bushel cheaper than U.S. corn. China also is a buyer of corn from Ukraine, said Rich Feltes, vice-president of R.J. O’Brien in Chicago.
"There is nothing to indicate that China right now will be a big importer of U.S. corn because our prices are too high," he said.
Feltes added that China has been keeping a lid on the cost of its animal feed — where most of the corn bought or grown in China ends up — by substituting cheaper soybean meal. He said a record amount of soybean meal has been fed to swine in China recently.
While Basse of AgResource noted that Chinese corn is about $9.60 a bushel and therefore well above U.S. prices, the Chinese seem to be eager to provide internally for the vast majority of the country’s corn needs. China is expected to produce 208 million tonnes of corn in 2013, a record, although some experts predict a crop size of about 204 million tonnes.
Nelson said China is doing a "fantastic job" of maximizing its own production of corn, making advances in seed technology and insisting its farmers use the best agronomy techniques in order to increase acreage.
It may seem counterintuitive that China would focus on building a record domestic crop that commands higher prices rather than buying cheaper supplies from abroad. But Basse said China ‘imports corn for political reasons, not for economic ones, especially when food inflation becomes a problem."
Hog producers in China are currently operating at negative margins and cheaper imports could lower the overall cost of feed.
What would really indicate a likely increase in the amount of Chinese imports of U.S. corn would be a return to trend line yields for U.S. growers, which would pull down prices to the level of $4 to $4.50 a bushel, said Basse.
"China is the great governor of corn demand," he said. "If prices go high, China will stand back, but if prices go lower, they will step in."
Even if U.S. corn prices are only able to decline to the $5-to-$6 a bushel range, Feltes said, he would expect more Chinese purchases of U.S. grain. But "at upwards of $7 a bushel, it seems expensive," he said.
Despite the difficulty predicting the future, analysts find it tempting to forecast a pattern of increases in corn imports to China that include supplies from the U.S. Continued growing demand, the probable long-term maxing out of significant gains in the size of the Chinese crop and a need to keep costs under control appear to make a strong argument for meaningful increases in corn imports to China.
"By 2018, we expect Chinese corn imports to be in the range of five to ten million tonnes," Nelson said. "How much of that is likely to be from the U.S rather than countries with cheaper corn remains to be seen."