There is quite a lot to unpack in the USDA Foreign Agriculture Service’s latest Grain and Feed Annual report for China. The headline grabber is the record high 28 million metric tons of corn that FAS projects China will import in 2020/21, followed by 15 million in 2021/22. The estimate for 20/21 is +4 million higher than the USDA’s current projection. Keep in mind, the agency releases its first official 21/22 estimates in the May 12 Supply and Demand report (WASDE). Both FAS estimates are dramatically higher than China’s typical corn import levels over the last decade.
Much of China’s skyrocketing corn demand comes from the feed sector as the country continues rebuilding its hog inventory following the devastating African Swine fever epidemic that wiped out half the country’s herd. China’s National Bureau of Statistics (NBS) reported the country’s swine herd was 416 million head at the end of Q1 2021, an increase of +95 million from a year earlier and in-line with pre-ASF inventory levels. Experts both inside and outside China believe those numbers are exaggerated, however, and there are widespread reports that ASF outbreaks persist in parts of the country.
Post forecasts that China will continue trying to rebuild its swine herd in 2021 and that overall production will remain below pre-ASF levels of 2017. Larger, newer swine facilities are increasing production but efforts are being hindered by low sow productivity and high input costs. Combined with other diseases in breeding sows and piglets, Post believes significant growth in China’s hog inventory will remain constrained this year and possibly into 2022. Meanwhile, MY20/21 poultry feed consumption is at historically high levels and expected to grow, but at a slower pace of +3% as high prices and competition with other animal proteins keep a lid on growth.
Strong domestic corn demand has naturally been driving prices higher, which Post says have increased at least +50% year-over-year. That’s resulted in the percentage of corn formulated in feed rations falling from 40% to 30% in swine feed, and from 65% to 55% in poultry feed over recent months. While feed consumption will continue to grow, Post says the percentage of corn used in feed will depend on relative domestic prices. Below are more details on the FAS’s 2021/22 projections from the report, which is available HERE.
Personally, I believe China was exposed to massive supply-side dislocations during COVID and their leaders didn’t like what they were seeing. I think since noticing how that played out the Chinese have gone on a massive buying spree and may perhaps be worried about another wave or even more NEW viruses that could further complicate. Remember, the past several years they have had to deal with not only COVID but also SARS, MRSA, Bird FLu, H1N1, ASF, etc…
Production: China’s Ministry of Agriculture and Rural Affairs (MARA) increased corn acreage targets by around +1.65 million acres in China’s key production areas. Post notes that any acreage increases will come from developing fallow or marginal land or loss to soy plantings. The MARA guidelines also compete with other policies that encourage increased soy production. As a result, only moderate production gains are expected as a result of the policy with 21/22 corn output projected to increase +2.8% to 268 million metric tons. That compares to estimated production of just over 260 million metric tons in 20/21.
Consumption: Corn consumption in MY21/22 is forecast at 297 million metric tons, with feed and residual consumption accounting for 210 million metric tons. However, Post’s estimate for 20/21 consumption at 282 million metric tons is -7 million metric tons lower than USDA’s official estimate of 289 million. The lower estimate is all found in feed and residual with post pegging 20/21 use at 196 million, -10 million below the USDA’s official estimate of 206 million. Post expects most of that demand to be replaced by wheat and rice. The USDA’s official estimate for wheat feed and residual consumption is 35 million while Post has it pegged +5 million higher at 40 million. Industry sources reported over 9 MMT of old stock rice were sold to specific feed users since September 2020, which was expected to replace about 6 million metric tons of corn. Industry sources report that Northeast corn is being held by traders speculating on price, driving ever increased substitutes of wheat and rice. Post notes that some mills have reportedly adopted a “no-corn” formula in their feed formulations. China launched a campaign to lower the content of corn and soymeal in animal feed earlier this year. In April, MARA issued official guidelines that by some estimates would reduce corn use by 40-50 million tons, and reduce soymeal use by 4-8 million tons, based on pre-ASF hog production levels. Others argue it is impossible to estimate the impact. Some also point out that the government’s ratios are only guidelines, not hard rules. Most believe usage will be driven by economics.
Stocks: Stocks in MY21/22 are forecast at 193.2 million metric tons, while 20/21 ending stocks are pegged at 207.2 million. The USDA’s official estimate for 20/21 ending stocks is 196.2 million. Post notes that the pandemic has shifted China’s view on strategic grain reserves from a policy of destocking toward one of rebuilding and expanding. So while it appears that China’s temporary reserve corn is exhausted, the auctioned corn has not been fully used. Rather, it was transferred from state reserves to commercially held stocks, resulting in commercial stocks currently near a 15-year high. Industry sources expect the turning point will not come until 2022 when the corn supply-demand situation reverses, and the threat of pandemic-driven shortages subsides. Post says all indications point to most current imports filling depleted stocks as domestic prices have remained high, suggesting new arrivals are not reaching end-users.