Smaller Chinese Grain Crop Seen

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Reports China’s agriculture ministry does not anticipate another record grain harvest for that country in 2012 will likely help put corn traders on alert for fresh Chinese purchases of U.S. corn and cause them to build at least a modest demand premium into futures.

China’s total grain harvest will shrink this year due to rising labor and fertilizer prices as well as uncertain weather, state radio quoted Minister of Agriculture Han Changfu as saying on Monday, according to Reuters News Service.

China has set a production target of 525 million metric tons (mmt) of grain this year, which is 8% below the record 571 mmt harvested in 2011, according to the Reuters report.

Han told a meeting with 10 other ministries that high labor and fertilizer costs will affect Beijing's efforts to hit the target. "Labor cost will not decline this year and the fertilizer price is already on the rise even before the spring planting begins," he said. "China's agricultural production is entering a phase of high cost."

Labor costs rose 25% and fertilizer prices increased 17% in 2011 compared with a year earlier, Han said.

He also warned against more extreme weather this year. "Weather conditions will probably be worse than last year and fighting disasters for a harvest will become this year's main theme," he said.

China’s official grain production has risen eight years in a row with help from rising government subsidies for rural areas and protective measures for domestic prices.

There have already been rumblings in the corn market about further Chinese demand after China last week bought 120,000 metric tons of U.S. corn, its first significant purchase since last October.

Recent price weakness and low ocean freight rates have made U.S. corn attractive for end users in southern China where local supply tightness has driven up corn prices.

USDA currently forecasts China will import 4 mmt of corn during the 2011-2012 marketing year, which ends Sept. 1.

Including its latest purchase, China has already committed to buy at least 3.779 mmt (148.8 million bushels) of U.S. corn for 2011-2012 delivery, with 2.636 mmt having already been shipped.

Still, growth in Chinese demand is a major uncertainty in the corn price outlook. "China’s corn import demand remains uncertain even as consumption is expected to continue to grow. Import prospects for China remain dependent on domestic production, relative prices, and internal policies," USDA Economist Ed Allen said told attendees of USDA’s annual Agricultural Outlook Forum last week.

In its baseline projections calculated for budget purposes, USDA projected China’s 2012-2013 corn imports at 4.0 mmt, but those projections were done in November, when USDA was still projecting China’s 2011-2012 imports at only 3 mmt.

 

Editor’s note: Richard Brock, Corn & Soybean Digest's marketing editor, is president of Brock Associates, a farm market advisory firm, and publisher of The Brock Report.

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