China: Grain and Feed Annual Report

Report Highlights:

Corn future and spot prices have dropped to their lowest levels in six years. The government has facilitated the liquidation of temporary reserve stocks with various producer support and processor support programs. This new trend is going to change the dynamic of China’s feed markets.

Since late September 2016, milling-grade wheat prices have surged 10 to 12 percent in middle and southern China. MY 2016/17 China wheat production is forecast to fall about 1.34 million tons, or 1.03 percent, on lower yields. Exuberant State Grain Administration market interventions have contributed to greater scarcity in the market for milling-quality wheat. Milling grade wheat prices have exceeded the RMB 2,500 per ton ($9.98 per bushel) offering a valuable arbitrage opportunity for global wheat exporters.

Executive Summary

China’s agriculture policy under the 13^th Five Year Plan (13^th FYP) was released in early November 2016. Under these new agricultural guidelines, the country will strive to ensure food security, improve the quality and efficiency farm production, and enhance China’s agricultural international competitiveness by 2020.

For China, MY2016/17 is the first season that the temporary reserve policy in North East provinces and Inner Mongolia has been replaced with the new “marketized purchase” and government direct producer payments program. MY2016/17 corn production forecast is unchanged at 219.6 million tons from the USDA January forecast, as slightly higher yields offset lower harvested area. Forecast MY2016/17 corn consumption is revised up 10 million tons to 237 million tons on significantly higher feed use and policy driven FSI use. Forecast MY2016/17 corn imports are cut 1.0 million tons from the January USDA estimate to 2 million on diminishing price competitiveness for import supplies. MY2016/17 corn ending stocks are forecast lower at 95.3 million tons, down 11 million from USDA January estimates on lower production and imports and higher consumption.

MY2016/17 wheat production is forecast unchanged from the USDA January estimate at 128.9 million tons as growers benefit from government price supports. Total wheat consumption in MY 2016/17 is raised 1.0 million tons to 118.0 million tons from the USDA January forecast. MY2016/17 wheat imports are forecast up 500,000 tons to 4.0 million tons compared to the USDA January forecast. Strong demand for by mills and speculative traders has raised interest in imports as domestic milling wheat prices approach levels close to parity with imported prices, even accounting for the applied out-of-quota TRQ tariff rate of 65 percent. MY2016/17 wheat stocks are projected at 110.6 million tons, down 1.0 million tons from the USDA January forecasts as imports are raised and stocks are tighter.

Forecast MY2016/17 rough rice production is adjusted 930,000 tons higher to 207.9 million tons from the USDA January estimate on expanded planting area. Post forecasts MY 2016/17 rice harvested area up 3.0 million hectares from USDA January estimates to 33.3 million hectares as corn growers in North East China are expected to switch from planting corn to rice. Forecast MY2016/17 consumption is unchanged at 144.0 million tons. Forecast MY2016/17 rice imports are unchanged at 5.0 million tons from USDA January estimates.

MY2016/17 sorghum production is revised higher by 500,000 tons to 3.8 million tons on expanded harvested area and higher yields. Provincial government irrigation infrastructure investments in North East China are estimated to raise MY2016/17 sorghum yields to 5 tons per hectare, up 23 kg per hectare from MY2015/16. MY2016/17 consumption is forecast up 100,000 tons to 8.8 million tons on higher FSI use and slightly lower feed use. MY 2016/17 imports are forecast to fall 500,000 tons to 4.5 million tons from the USDA January estimate on lower sorghum price competitiveness in the face of falling corn prices

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