Monday, July 18, 2016

China Pork Output Down Second Year in a Row

China's pork output is in its second straight year of decline, according to the National Bureau of Statistics. The NBS report on GDP for the first half of 2016 estimated that January-to-June pork output was down 3.9 percent from a year earlier. That followed a 3.7 percent decline in pork for 2015 reported by the Bureau earlier. The Statistics Bureau's numbers for hog slaughter and hog inventory show similar declines of 3-to-4 percent in both years.

Change in China's hog production
Item 2015 2016 Jan-June

Percent change
National Bureau of Statistics:
Pork output -3.7 -3.9
Hog slaughter -3.7 -4.4
Hog inventory -3.2 -3.7
Ministry of Agriculture:

Hog slaughter -1.1 -6.3
Hog inventory -9.0 0.0

Ministry of Agriculture numbers, on the other hand, appear to have some inconsistencies.  The number of hogs slaughtered at designated slaughterhouses during January-June 2016 was down 6.3 percent from the same period last year. That was much a much faster decline than the 1.1 percent decline in slaughter reported by MOA numbers for 2015. The MOA slaughter volume of 100 million for January-June 2016 was, as usual, about one-third of the NBS slaughter number of 320 million for the same period. The MOA hog inventory during June 2016 was equal to the inventory a year ago, although monthly gains were tepid (under 1 percent) for March-June. Inventories are still at a low level--the hog inventory fell dramatically during 2014 and 2015, according to the MOA numbers.

The NBS report also estimated that live hog prices climbed 38.1 percent in June 2016 from a year earlier. Overall, agricultural producer prices in China were down 4.5 percent year-on-year, according to the NBS report. Corn prices were down 15.3 percent, wheat prices were down 8.6 percent, and rice prices were down 1.9 percent. However, the consumer price index for food was up 4.5 percent.

"Primary industry" (which includes agriculture) GDP was up 3.1 percent during the first half of 2016, less than half the overall GDP growth rate of 6.7% reported by NBS.

NBS estimated 2016 summer grain output--primarily winter wheat--at 139.26 million metric tons. This is slightly less than last year's record, but still China's second-largest summer grain output ever. A world market already swimming in wheat doesn't need more of it, but here it is.

Per capita rural income grew 6.7 percent after adjusting for inflation. Somehow, rural income grew faster than urban income, even though farm prices fell 4.5 percent, agricultural GDP grew at less than half the rate of other sectors, agriculture received 2.8 percent of fixed asset investment, and the number of rural-urban migrants was nearly stagnant. The average monthly income for the estimated 175 million rural migrants was 3202 yuan, up 6.7 percent from last year. Growth in urban per capita income adjusted for inflation was 5.8 percent.

Sunday, July 17, 2016

Rickety Livestock Statistics to be Improved

China's Ministry of Agriculture is trying to improve statistics on livestock and poultry. These efforts open a window into the crevices of China's rickety statistical system that is largely untouched by 20th century developments like stratified sampling, weighting, and standard errors. Most outsiders think China's statistical problems are simply a matter of lying by statistical bureaus, but the problems are deep-seated and systemic.

Last month, a training meeting was held in Liaoning Province for personnel from key counties in northern Provinces to teach them how to collect statistics on livestock and poultry, and to ensure that they all use standardized procedures. In his remarks at the meeting, the vice-director of the national livestock station said work on livestock statistical monitoring needs greater attention from leaders, the capacity of personnel needs to be improved, and the work needs to be better-funded. He emphasized that township-level personnel needed the most attention. Attendees heard lectures and were taken to a model county to observe the best practices for collecting, recording, and reporting data on livestock.
Statisticians instruct a village clerk in Shaanxi Province's Zhouzhi County 
how to help farmers China Livestock and Veterinary News
Like many "statistics" in China, livestock statistics are generated by an old-fashioned administrative reporting system that rely on multiple layers of poorly-educated and poorly-paid clerks collecting and reporting reams of numbers they rarely understand. A Ministry of Agriculture document describes the elaborate system for collecting livestock monitoring data that was set up in response to a decree by the State Council in 2007. The system includes annual and quarterly reports of provincial livestock and feed industry data from all provinces; monthly reports from key hog-producing counties; weekly price reports from markets; and another set of monthly reports from a group of villages, companies, and farms that report production, sales, and production cost information. Reporting counties were chosen by ranking them using data from 2006. The document gives general instructions for choosing samples. In villages selected to be hog monitoring sites, officials are to choose one big farm, one medium farm, and a small farm to collect data from.

According to the document, village officials (typically veterinary technicians) collect the numbers and pass them up to their township office who compile the data and report it to the county. The annual and quarterly complete reports are passed up to the province and then to the national office in Beijing. Other monitoring data are transmitted by Internet directly to the Ministry of Agriculture's central database.

An article in a livestock-oriented newspaper last month said the livestock reporting system has "a few urgent problems" that need to be addressed. The problems start at the village level where the task of filling in the report forms is typically an additional task given to the village veterinary technician, the village accountant, or the person in charge of monitoring laborers or settling family disputes. Reporting statistics is not a high priority task for these folks, and they seldom have any understanding of statistical concepts nor of how the statistics are used. The village reporter seldom has face-to-face contacts with livestock producers.  The report forms are too complex and not understood by the person answering the questionnaire nor by the person administering it. Large scale farms pose a new difficulty. The large numbers of animals or poultry make it impossible to easily verify the numbers reported. Biosecurity measures forbid outsiders from entering livestock farms, so there is no way to verify numbers given to survey-takers.

The article recommends simplifying report forms, holding regular training for statistical workers, and making greater efforts to verify and check numbers. The writer thinks that statistical clerks will be less likely to falsify data, make errors, or omit numbers if they are aware of the whole process and the importance of the statistics.

A 2013 article points out similar problems, observing that the system is essentially a census that can't possibly collect accurate information. The area that each village reporter is responsible to is too broad for him or her to conduct face-to-face interviews. The author of the 2013 article gave other reasons why survey reports may not be truthful and accurate. He said livestock report forms are often filled out based on village ledgers, subjective impressions, or phone calls. Most livestock farmers have no production records. The number of animals is typically estimated and farmers may "hide" sales. Some data items are not fully understood.

The livestock reports are filed with township statistical offices which are responsible for all kinds of statistics. The township clerks probably have little or no statistical knowledge of livestock and poultry. They fail to catch inconsistencies or implausible numbers. The writer says there should be more careful auditing of numbers to ensure that carcass weights make sense, that ratios of eggs to chickens and milk to cows are reasonable, and that changes in numbers from the previous year are realistic. He also points out that statisticians with no business experience or sense of responsibility are prone to mistakes.

Last month's training session for county statisticians appears to be designed to remedy some of these problems. The 60 county livestock reporters attending were informed of the overall statistical process, and they visited a model county in Liaoning to learn about its village-township-county reporting process. They learned how to help farmers record expenses and sales, and how to maintain a record system.

Another training session for 50 county livestock statisticians in southern provinces was held in Sichuan Province during May. This session seems to have been more advanced, with emphasis on funding, management, and analysis of statistical data. A number of counties have held training sessions.

Chinese officials have high hopes that "big data" can help them monitor markets in real time, allowing them to achieve their dream of engineering stable markets. The Ministry of Agriculture is planning a new--and equally elaborate--system for collecting livestock industry statistics directly using "big data."  The Ministry plans to set up a pilot system that will collect data from all points in the supply chain: urban and rural consumer markets, storage, transportation, slaughter, and farms. The Ministry will distribute electronic monitoring equipment that will transmit data to a system that will generate automated "early warning" reports, alerting authorities when to intervene in the market. No details are available--this appears to be still on the drawing board and it will take three years to get pilots going. "Big data" presents an interesting prospect but one wonders whether it will be immune to human error and falsification. Couldn't a slaughterhouse find a way to inflate its numbers if it gets subsidies--or turn the machine off when authorities tell them to shut down? It will be a while before big data supplants 20th-century statistical sampling.

In the meantime, all Chinese "statistics" should be taken as suggestions, not precise measures of reality. Various statistics should be cross-checked against one another to see whether they make sense. If Chinese authorities were brave enough to report more of the statistical items they collect to the public in a transparent manner, there would be a greater chance that market analysts and academics could come up with solutions and ideas for improvement in statistics.

Thursday, July 14, 2016

China Issues First Ag S&D Report

China's Ministry of Agriculture issued its first China Agricultural Supply and Demand report this week, taking a long-awaited step toward providing useful information on agricultural markets. Several private companies in China have been selling reports like this by subscription for years, but this is the first report with regular agricultural supply and demand estimates to be released by a Chinese government agency to the public without charge.

The China Agricultural Supply and Demand Estimates (CASDE) includes supply and demand balance sheets for corn, soybeans, cotton, vegetable oils, and sugar, plus a brief narrative explaining supply and demand conditions for each commodity. (Notably, rice and wheat are excluded--perhaps these commodities are too sensitive to discuss.) The report appears to be modeled on the USDA's WASDE report, although it only covers a few commodities and is limited to China's S&D situation. The report contains S&D estimates for market years 2014/15, 2015/16, and 2016/17. The report will be released monthly with updated estimates, and can be downloaded free from the Ministry of Agriculture web site (it is in pdf format in Chinese).

The CASDE's estimates of China's corn S&D indicate a larger build-up of inventories than the USDA's WADE. The Chinese estimates have lower consumption of corn than USDA's report and larger imports for the current year. While the world is awash with corn, the CASDE sees only a 3-percent decrease in China's corn output in 2016/17. According to the CASDE, China's feed use of corn will rebound with the recovery of the livestock sector, and they say consumption will be stimulated by a subsidy for processors and "reform of the corn reserve policy." Corn imports will drop from 4.6 million tons in 2015/16 to 2.4 million tons in 2016/17, due to the closing of the gap between Chinese and international corn prices. China will continue to increase its corn inventory by 9.49 million tons during 2016/17. However, the build-up of corn inventories will be slower than during 2014/15 (+37.8 million tons) and 2015/16 (+36 million tons). The inventory increases estimated by the CASDE are faster than USDA's WASDE estimates, but not as rapid as some other estimates coming out of China. (Actual corn inventories are not reported, since these are a "state secret.")

China corn balance sheet (China Ministry of Ag, July 2016)
Item Unit 2014/15 2015/16 2016/17
Sown area 1000 HA 37,123 38,117 36,026
Yield KG/HA 5,809 5,892 5,952
Production Mil MT 215.70 224.58 214.27
Imports Mil MT 5.52 4.60 2.40
Consumption Mil MT 183.39 193.25 206.98
--food Mil MT 7.52 7.65 7.72
--feed Mil MT 112.56 120.61 131.99
--seed Mil MT 1.69 1.66 1.61
--waste and other Mil MT 9.05 9.56 9.81
Exports Mil MT 0.01 0.03 0.20
Inventory change Mil MT 37.82 36.00 9.49

The CASDE report anticipates a modest rebound in China's soybean output for 2016/17, but it will play an essentially inconsequential role in meeting China's demand for over 99 million tons of soybeans expected next year. The increase in imports is characteristically conservative, nudging up from just under 84 million tons in 2015/16 to 85 million tons in 2016/17.

China soybean balance sheet (China Ministry of Ag, July 2016)
Item Unit 2014/15 2015/16 2016/17
Area 1000 HA 6,800 6,590 7,156
Yield KG/HA 1,787 1,762 1,783
Production Mil MT 12.15 11.61 12.76
Imports Mil MT 78.35 83.76 85.00
Consumption Mil MT 89.83 95.84 99.42
--crushing Mil MT 77.34 82.69 85.20
--food Mil MT 9.15 9.71 11.18
--seed Mil MT 0.50 0.54 0.56
--loss & other Mil MT 2.84 2.90 2.48
Exports Mil MT 0.14 0.13 0.18
Inventory change Mil MT 0.53 -0.60 -1.84

China's cotton demand remains weak--as it has been since 2008. Both production and consumption of cotton will fall during 2016/17, according to CASDE. The decline in cotton production is attributed to the cut in the Xinjiang target price and generally falling cotton prices in China. Production is falling faster than consumption, and cotton imports remain at the much slower pace set during 2015/16. Still, CASDE expects cotton stocks to fall only about 1.5 million tons; the ending inventory for 2016/17 will still be 140% of annual consumption. 

China cotton balance sheet (China Ministry of Agriculture, July 2016)
Item Unit 2014/15 2015/16 2016/17
Beg. Inventory Mil MT 12.40 12.80 11.66
Area 1000 HA 4,219 3,433 3,100
Yield KG/HA 1,460 1,514 1,510
Production Mil MT 6.16 5.20 4.63
Imports Mil MT 1.67 0.92 0.93
Consumption Mil MT 7.40 7.24 7.12
Exports Mil MT 0.02 0.02 0.02
End Inventory Mil MT 12.80 11.66 10.09

Soybean oil production will rise, driven by increased imports of soybeans, says CASDE. Rapeseed oil production will drop due to a 20% decrease in rapeseed production due to elimination of its price support policy. 

China vegetable oils balance sheet (Min Ag, July 2016)
Item Unit 2014/15 2015/16 2016/17
Production Mil MT 26.12 25.59 25.38
--Soy oil Mil MT 14.01 14.82 15.15
--Rapeseed oil Mil MT 6.92 5.77 5.25
--Peanut oil Mil MT 3.03 3.00 3.08
Imports Mil MT 6.14 5.57 5.27
--Palm oil Mil MT 4.07 3.60 3.40
--Rapeseed oil Mil MT 0.73 0.82 0.75
--Soy oil Mil MT 0.77 0.60 0.58
Consumption Mil MT 30.80 31.17 31.38
--Urban Mil MT 20.17 20.41 20.55
--Rural Mil MT 10.64 10.76 10.82
Exports Mil MT 0.14 0.12 0.11
Inventory change Mil MT 1.31 -0.13 -0.84

China's sugar imports are estimated at 3.5 million metric tons during both 2015/16 and 2016/17. Production will bounce back during 2016/17 while consumption remains relatively steady. 

The CASDE report is a major improvement over past reports. The narrative conveys reasoning behind key numbers. In contrast, a series of monthly reports issued over the last several years included no balance sheets and mostly consisted of reading off import and price statistics with little or no interpretation. The CASDE report, importantly, lists dates when future monthly reports will be released. Past reports were released sporadically or not at all. In the CASDE, each commodity narrative is signed by a Ministry of Agriculture analyst and contact information is given. This is a major innovation in Chinese bureaucracy where no one below the top leadership ever wants to offer opinions or take responsibility for anything. 

The CASDE report complements related Ministry of Agriculture activities, including an annual "outlook conference" and ten-year projections released each of the past two years. These activities also appear to be at least partly modeled on the USDA outlook conference and the ten-year projections made by USDA and OECD/FAO. 

There is no confirmation of the rumor that the release of the first CASDE report is linked to the Martian study team's visit reported on this blog two months ago. That team was alarmed to find that the world's largest agricultural country issued no reports on agricultural supply and demand information. As we understand it, taking advice from Martians is not part of the "China Dream," so the rumor can't possibly be true.

China commodity prices (RMB per metric ton)
Year
Commodity Description 2014/15 2015/16 2016/17
Corn production areas 2266 1830-1930 1550-1750
C&F imports 1643 1500-1670 1650-1850
Soybeans production areas 4675 4275-4475 4350-4550
C&F imports 3265 2925-3125 3100-3300
Cotton Domestic 3128B 13894 12500 12500-14500
Soy oil Domestic ex-factory 5500-5900 5600-6300 5700-6400
C&F imports 5400-5900 5500-6200 5600-6400
Palm oil C&F imports 4300-5500 4300-5800 4400-6000
Rapeseed ex-factory 6000-6500 5900-6400 6000-6500
Peanut oil ex-factory 13400-14600 14000-15500 14400-15400
Sugar Domestic 4877 5400-5700 5600-6400

Monday, July 11, 2016

Land Transfers: Many Potential Risks

New regulations will protect farmers' rights in China's booming rural land transfer market--at least that's the hope of the Ministry of Agriculture that issued regulations.

The Ministry says rentals and other transfers of the rights to farm rural land now account for over one-third of collectively-owned land contracted to rural residents. (The proportion is up from about 7 percent in 2008 when officials first gave the go-ahead to set up pilot land exchanges and encourage the practice.) Over 10 percent of land has been transferred to enterprises or companies.

Agriculture Ministry officials are watching the land-transfer trend with trepidation.

According to Economy Daily, it has become popular for commercial investors to go to the countryside to "play agriculture" and for entire villages to rent out their land as a single big parcel. The Director or the Agriculture Ministry's rural operations office said that transferring large parcels of land can increase its value, reduce transactions costs, and give farmers greater value. However, the Director acknowledges that some village officials have made backroom deals or entered into deals for self-enrichment. These practices may violate farmers' rights, thus disrupting the "harmonious rural economy and society."

The Ministry is also worried about rented farmland being converted to non-grain crops or non-agricultural activities. Officials say there are "many potential risks."

The new regulations stipulate that villages where farmers have been issued land rights certificates should present a power of attorney when an entire village's land is rented out. Other villages must obtained signed agreements from at least two-thirds of collective members.

The regulations are not binding; they are intended to provide guidance as a reference for local officials regulating land transactions. China has a variety of land arrangements and institutions at the local level. Some provinces are in the process of delineating boundaries and issuing land rights certificates; other places have not given operation rights to farmers.

The Ministry says that 43 percent of counties have established land transfer exchange platforms. These include a variety of organizations. Many are institutions under the supervision of the Ministry of Agriculture's rural operations system. Others are operated as state-owned enterprises, and yet others are private companies operated as Internet-based exchanges. The exchanges are supposed to operate in an open, fair, and law-abiding manner, encourage parties to enter into formal contracts and settle disputes when they arise. The Ministry says that 67% of land transactions have formal contracts (much higher than other surveys say).

Saturday, July 9, 2016

Heilongjiang Soybean and Grain Subsidies Announced

The target price subsidy will be 130.87 yuan/mu for soybeans planted in Heilongjiang Province during 2015, according to an announcement by Provincial authorities. That is equivalent to $118 per acre at the current exchange rate.

The 2015 subsidy is more than double the 60.5 yuan/mu ($55 per acre) that was given for 2014 soybeans. There is no news about soybean subsidies in other provinces. Last year's target price subsidy for soybeans was 54 yuan per mu in Jilin and reportedly just 10 yuan per mu in Liaoning.

The soybean subsidy will be distributed to farmers based on the area of soybeans they planted for the 2015 crop (approximately 15 months ago) that has harvested last fall. The subsidy funds will arrive several months after farmers planted their 2016 crop. The subsidy for the soybean crop currently in the ground will be paid out a year from now in 2017.

The target price subsidy is a trial program for soybeans initiated in 2014 for northeastern provinces. The subsidy is paid out when the market price is less than the target of 4800 yuan per metric ton. The subsidy is the difference between the target and the provincial average market price multiplied by the average soybean yield. Authorities did not reveal the yield nor the market price they used to calculate the subsidy. If the yield was 120 kg/mu, it implies the difference between the target and market prices was 1090 yuan/metric ton. That, in turn, implies the market price was 3710 yuan/metric ton. This is near the bottom of current price quotations in Heilongjiang, which range from 3700 to 4000 yuan.

Heilongjiang also announced that the new combined grain subsidy for this year will be 71.45 yuan/mu ($64.73 per acre). This is a single payment that combines three previous grain subsidies (a direct payment, a seed subsidy, and a general input subsidy). The announcement refers to the new "agricultural support and protection payment" as a subsidy to preserve land fertility, but it does not mention any requirement about how the subsidy payment should be used by recipients.

In Heilongjiang the land base for distributing to the farmers is in transition. The province is in the process of determining farmers' land rights province-wide. For now, the grain subsidy will be distributed based on each farmer's historical contracted land area. The announcement notes that a lot of farm land is rented out, which raises questions about who gets the subsidy--the renter or the land lord. In cases where there is no rental contract specifying which party is entitled to the subsidy, the person holding the contract rights to the land (the landlord) receives the subsidy.

A new subsidy for corn producers promised for this year has not been announced, but a post on a number of web sites last month said the new corn subsidy will be around 170 yuan per mu. According to the posting, the corn subsidy will be offered in Heilongjiang, Jilin, Liaoning, and Inner Mongolia, and local officials will determine the final amount of the subsidy and how it will be distributed.

It appears that a two-layer subsidy program is emerging in which subsidies are given for particular crops on top of a basic entitlement payment for farmers. It seems likely that at least some farmers in Heilongjiang may receive the 130.87 yuan soybean subsidy and 170 yuan corn subsidy for land they plant in those crops, in addition to the 71.45 yuan "land fertility" subsidy.

Monday, July 4, 2016

New Farm Subsidy Budgeting Guidelines in China

China's farm subsidy overhaul took another step forward last week as the Ministry of Finance announced regulations for distribution of funds for "support and protection" payments, including a new subsidy for support of "appropriate scale farms."

The Ministry of Finance will budget funds for the farm subsidies annually, then issue the money to the Ministry of Agriculture. It will then be passed down to provincial and county governments for distribution to farmers and other recipients. The new regulations set general guidelines for distribution of the funds, but local governments will decide the details of how much the subsidies will be and on what basis the subsidies will be awarded. With each locality determining the size and subsidy method, and with several types of distinct recipients, these subsidies will be even less transparent than China's existing farm subsidies.

As announced previously, the new subsidy will replace three existing subsidies: the direct payment to grain producers, the comprehensive input subsidy, and subsidy for improved seeds. The new subsidy system will have two parts. First, a "land fertility improvement" subsidy will go to small-scale land-holders who still plant grain on the land they contract from their village collective. This subsidy will not be given for farmland used for livestock farms, forestry, nonfarm construction, or land left idle for a long time, nor for poor quality land reclaimed to offset farmland used for construction. Provincial finance and agriculture departments will be responsible for determining which land will no long receive subsidies--the criteria may vary from province to province.

The second part is a new subsidy to support "appropriate-scale" farms that rent in land. There will be several types of recipients of this subsidy. Some of the funds will be used to set up loan guarantee companies run by local governments; some will be used for subsidized interest on farm loans. (Loan subsidies can cover no more than 50% of the interest.) Some funds will be paid to nongovernmental "farmer service organizations" which are not clearly defined, but probably include farm machinery cooperatives and advisory services offered by fertilizer, pesticide and seed companies. The regulations do not encourage giving direct payments to new-type farm operators--"appropriate scale" farmers. It appears that the funds will support loans, custom farming, and advisory services for these farms. The subsidy recipients are required to provide services to farmers, and get reimbursed afterward.

The land fertility subsidy is intended to encourage "conscious upgrades of land fertility," including utilization of crop straw and stalks, guiding farmers to plough crop residue back into the soil, sub-soil tillage, reducing use of fertilizer and pesticide, and increasing use of organic fertilizer. The regulations "encourage adoption of diverse measures and innovative methods," but there are no specifics on how authorities will link these payments to behavior by farmers.

The land fertility subsidy can be paid out to farmers based on four possible bases: the farm family's land allocation in the second round of land distribution; the family's historic land tax base; the registered contracted land area; or the area of land planted in grain.

Villagers who rent out their contracted land to an "appropriate scale" farmer seem to be eligible for the land fertility subsidy. In this instance, it's hard to imagine how a villager who rents out his/her land will ensure that the person cultivating the land will undertake the required land improvements.

Subsidy funds are to be handed over the provincial finance departments within 90 days of budgetary approval by the National Peoples Congress. The province has 30 days after forming its own budget to issue funds to counties or municipalities. It sounds like subsidies are to be issued to recipients by early-to-mid summer, at the earliest.

Friday, July 1, 2016

China's Inedible Wheat Sells Cheap(er)

Statisticians expected China to produce a near-record 130 million metric tons of wheat this year. However, a large proportion of the wheat crop recently harvested is inedible due to the effects of heavy rainfall that caused head scab, sprouting, and other problems with the grain. The poor quality wheat is not good for flour-milling since its gluten level is too low.
Wheat that sprouts while still on the stem. A photo from 2015.

The degree of problems with substandard wheat kernels varies from place to place, but the problems seem to be widespread across the winter wheat region in central and eastern China. The hardest-hit places appear to be in southern Jiangsu, Anhui, and Henan Provinces.

This summer five provinces have launched their minimum price procurement programs to place a floor under market prices. However, large portions of wheat cannot meet the standard of less than 20-percent substandard kernels required to qualify for the minimum price program. Farmers then have to sell their poor quality wheat at a steep discount to private traders.

In Yangzhou municipality, a district in southern Jiangsu Province, state-owned grain enterprises have purchased 263,700 tons of wheat as of June 29--about 40 percent of their expected total for the season. Of that, 145,900 tons was purchased at the minimum price. Private traders have purchased only 106,900 tons. Officials in Yangzhou say about half of the local wheat has problems with head scab, mildew, or sprouting.

Officials are prodding state-owned enterprises to buy up the farmers' substandard wheat. In the Yangzhou region, one local government has borrowed 20 million yuan for a special purchase program and the Agricultural Development Bank has earmarked an equal amount of funds for this purpose. Officials are negotiating with grain companies in Guangdong Province to purchase 140,000 tons of Yangzhou's wheat.

The poor quality of wheat may be a reason why the pace of procurement is markedly slower this year. As of June 20, 10.18 million tons of wheat had been procured in major production areas--that was 6.97 million tons less than last year. In Chuzhou of Anhui Province, sample testing showed that as much as 80 percent of the wheat was not up to standard.

In Pingdingshan, a region of Henan Province, officials estimate that 10 percent of this year's wheat doesn't meet the standards for the minimum price program. Feed mills, industrial processors, and companies from outside the province will be "invited" to buy up the substandard wheat.

Feed mills are showing interest in the substandard wheat as a substitute for corn--albeit at a low price. Good quality corn is relatively scarce in China at the moment. Much of the northeastern corn crop was procured for the corn price support program. Not that much corn is available outside the northeast. Corn prices are 1900 to 2080 yuan per metric ton in Jiangsu and Anhui Provinces, but substandard wheat is 1500 to 1900 yuan. In Guangdong Province, common corn is 1930-2000 yuan per metric ton, and off-quality wheat is 1700-2000 yuan. Some feed mills from Shandong Province reportedly have begun buying up substandard wheat in Jiangsu and Anhui.

The opinions of pigs and chickens regarding these shoddy ingredients in their food were not reported.

China has had problems with heavy rains at wheat harvest three years in a row. Grain depots are already stuffed with substandard wheat nobody wants. In Pingdingshan, there is reportedly only space to store 300,000 tons for the expected 500,000-ton procurement this year. On June 29, grain officials tried to auction off 52,000 tons of substandard wheat produced in 2010, but none of it sold.

While there is much concern about "low" prices of 1700 yuan per ton received by Chinese farmers, the average price of imported wheat (presumably of decent quality) so far this year is 1590 yuan per ton. China's floor price for domestic wheat that meets quality standards is 2360 yuan per ton. There is some speculation that the floor price for Chinese wheat could be reduced for 2017.