Friday, June 23, 2017

Subsidies = Profit in China's Largest Grain Province

This month, a Grain and Oils News journalist reported dramatic changes in cropping patterns in parts of China's Heilongjiang Province following the removal of the support price for corn. While the article emphasizes the greater market orientation of planting decisions this year, the journalist's investigations also suggest that fat subsidies account for most of the profits earned by farmers in China's largest grain-producing province.

Some traditional soybean-producing areas of Heilongjiang Province where corn was dominant last year have now reverted to soybeans, according to the journalist's survey this month in Heilongjiang, China's northernmost region bordering Russia's Far East and its largest grain producing province. In the northern third to fifth temperature belts--around cities such as Bayan and Heihe--corn production has been cut as much as 70-80 percent this year. Officials have ordered farmers to switch land to soybeans, minor grains, and other beans. Corn remains the predominant crop in the first and second temperature belts in southern parts of Heilongjiang around the provincial capital Harbin--officials have decreed that corn is suited to this region, so it remains king there.

In Hailun City, a major soybean-producing region, soybean plantings last year were 113,300 ha and corn plantings were 80,000 ha. This year, soybean area is reportedly up 59 percent--estimated at 180,000 ha--and corn area has fallen 33 percent--to 53,300 ha. One farmer in Suihua City told the reporter that 50 percent of the 200 hectares around his village had been switched from corn to soybeans.

In the Jiusan (no. 93) state farm area, 113,30 ha of corn and 108,600 ha of soybeans were grown last year, but this year soybeans became the dominant crop. Corn area plunged to 39,300 ha, and soybean plantings reportedly jumped to 153,300 ha in the Jiusan state farm area.

A seed dealer in northern Heilongjiang said his sales of soybean seeds are up 35 percent from last year and corn seed sales are down 65 pecent, reflecting the shift from corn to soybeans. This year, soybeans account for half of his seed sales, up from 20 percent last year.

The Grain and Oils News article reiterates all the government talking points about "marketization" of corn and targeting crops to their advantaged areas, but the journalist also reveals that farmers in China's top grain province continue to rely on subsidies and a rice price support in making their planting decisions. The journalist estimates that farmers would not earn any profits on corn at this year's price without a subsidy. Profits are better for soybeans, he said, but they rely on even bigger subsidies.

In Beilun City's Sanhe Village--a "farmer cooperative pilot village"--farmers have shifted their 800 hectares of land into soybeans but still plant 10 percent of their land in corn. For soybeans, farmers get a 150 yuan per mu subsidy for growing them in contiguous fields (monocropping) plus a "target price subsidy" payment  of 120 yuan per mu--a total subsidy of 270 yuan per mu (about $240 per acre; other reports suggest the target price subsidy will be replaced this year by a direct payment that does not depend on the price). For corn, farmers in this village get a subsidy of 190 yuan per mu (about $170 per acre, which includes a "cooperative subsidy" specific to this model village). According to the reporter, fields of corn in Sanhe Village would incur a net loss of 90 yuan per mu without the subsidy, but farmers get a 100-yuan profit when the subsidy is taken into account. Fields of soybeans would lose 60 yuan per mu without subsidies, but they earn a profit of 220 yuan per mu with their subsidies.

In Haibei Town, the journalist reports that a 150-yuan-per-mu subsidy plus the target price subsidy has induced farmers to plant more soybeans.

Rice is the only crop in Heilongjiang that still has a support price. A farmer named Yang in Suihua City has 30 mu of his own family's land and rents 38 mu of land from others. The subsidy for rice is only 67 yuan per mu (this is probably the "support and protection payment"). The production cost is estimated at 500 yuan per mu, while land rent is 667 yuan per mu. With a yield of 515 kg per mu and a price of 2.6 to 2.8 yuan per kg, plus the subsidy, farmer Yang reportedly earns a profit of 900 yuan per mu on his own and 220 yuan per mu on rented land for growing rice. Other reports say the minimum price for japonica rice was cut for the first time this year to 3 yuan/kg to prevent a massive shift of land from corn into rice production in this region.

Another impact of the lower corn price this year is a reduction in land rents, while costs of chemical inputs and labor has been relatively steady.

The reporter says that corn processing enterprises are benefiting from the combination of lower corn prices this year and government subsidies for processing corn. One company that processes 1.2 million metric tons of corn annually is operating at full capacity and has 60,000 metric tons of corn in inventory. The company has bought corn from reserves at two auctions at a price of 1380 yuan/mt and expects to buy 40,000 mt monthly at the auctions. They are expanding production to build market share as well as to bring down unit costs. The company sells corn starch products to pharmaceutical and beer manufacturers in Harbin. They hope to expand production by 1 million metric tons to sell to the thriving paper-making and food businesses in southern China.

Prospects are mixed for soybean processors in Heilongjiang. Many small and medium soybean processors remain idle due to shortages of cash and outmoded technology. They say they are caught between the expansion of state-owned and foreign-invested processors. Those with stable sales channels are benefiting from the expansion of domestic soybean output.

Saturday, June 17, 2017

Good Wheat Crop But Price Held High

China's winter wheat crop is bigger and better in 2017, according to propaganda from the Ministry of Agriculture's Press Office. The harvest was 80-percent complete this week, and high quality, high yields, and an improved mix of varieties are evident, according to the Ministry.

Other news reports concur that the winter wheat region of central and eastern China has had good weather for this year's harvest. Only a few areas have been hit by heavy rains that degraded the quality of the crop last year; some areas of Shandong and Hebei reportedly accelerated harvest ahead of expected rain last week. The Ag Ministry reports that its program of coordinated wheat spraying averted pest and disease problems. Agricultural officials also brag that their guidance and quality wheat model-farming areas have increased the supply of high- and low-gluten wheat varieties that wheat millers previously had to import to make western-style breads, cakes, and snacks.

A report from China Grain Net agrees that the quality of this year's wheat is good, but surmises that the overall size of the crop is down this year. Supplies in the market are tight because a large proportion of last year's crop was purchased for the state reserve, according to this report. Imports are also restricted by a tariff rate quota.

In 2016, authorities purchased over 28 million metric tons of wheat at the minimum price--40 percent of all wheat purchased by all enterprises and nearly 22 percent of China's entire wheat crop. (To put this in perspective: the 28 million metric tons of wheat purchased and placed in storage last year is more than the output of all but five other countries in the world.)

According to China Grain Net, final demand for wheat flour is tepid now, and demand for wheat bran for feed is not especially strong either. However, traders have been buying the new wheat crop aggressively, because commercial inventories of wheat are thin.

Prices are still relatively strong in China because supplies in the market are artificially restricted. The government is holding on to reserves it built up by buying up wheat at minimum prices in past years.

China Grain Net says the Chinese wheat market still has abundant supplies, considering that the government's reserve corporation is still holding relatively high inventories. Auctions have offered 3 million metric tons of wheat from reserves each of the first two weeks of June, but less than 200,000 metric tons were sold. Wheat offered was mostly produced in 2014, but some was as old as 2009. Reports say the availability of newly harvested wheat has cooled demand for the old wheat being offered at auction. On June 20, another 3.1 mmt of reserve wheat and 144,000 metric tons of old imported wheat will be auctioned.

The major wheat-producing provinces have announced the start of purchases of wheat at minimum prices. Market prices for wheat in many places exceed the 118 yuan/50kg minimum price set for 2017 (about $ 9.40/bushel--and double current market prices in the U.S.), but prices are at or below the minimum in a number of districts.

Henan Province announced its minimum price program on June 6, assuring the public that it has 10.4 mmt of storage space in 955 warehouses available for this year's wheat. The government's agricultural policy bank has earmarked enough loans to buy up 12.25 mmt of wheat at support prices and to finance 2.25 mmt of "marketized purchases." Although world prices have fallen in recent years, the Henan announcement explains that the minimum price program is meant to shore up the enthusiasm of farmers to plant grain by assuring them of a minimum price for their crop.

The Agricultural Development Bank of China issued a document this week stressing the importance of the minimum price program for summer grain procurement, and it urged provincial bank branches to work with local grain officials and grain reserve corporation branches to make sure funds are available for grain purchase, that there are no "empty spaces" in its procurement program, and that no IOUs are issued to farmers selling grain. Counties targeted for poverty alleviation will get special treatment to expedite funds for grain-purchase loans.

Shandong Province grain bureaucrats held a meeting to organize wheat marketing where officials were told that maintaining wheat production and boosting rural incomes are essential tasks to keep rural people satisfied and to keep the Central Communist Party Committee at ease.

Friday, June 9, 2017

China MOA Ag S&D Estimates June 2017

China's Ministry of Agriculture cut its estimate of 2017/18 corn output by 1.5 million metric tons in its June "China Agricultural Supply and Demand Estimates" (CASDE) report, based on drought conditions in parts of northeastern China. The yield was cut slightly due to hail that damaged new corn plants in some areas. The new estimate of 2017/18 corn output is about 8 mmt less than 2016/17, and nearly 13 mmt less than 2015/16. MOA now estimates that demand for corn will exceed supply by 1.7 mmt in 2017/18.

China corn supply and demand (Ministry of Ag, June 2017)
Item Unit 2015/16 2016/17 June 2017/18 May 2017/18 June
Planted area 1000 ha 38,119 36,760 35,840 35,590
Harvested area 1000 ha 38,119 36,760 35,840 35,590
Yield Kg/ha 5,893 5,973 5,948 5,947
Production MMT 224.63 219.57 213.18 211.65
Imports MMT 5.52 1 1 1
Consumption MMT 194.09 210.72 214.07 214.07
--Food MMT 7.65 7.82 7.89 7.89
--Feed MMT 121.01 133.03 135.03 135.03
--Industrial use MMT 54.17 58.25 59.75 59.75
--Seed MMT 1.7 1.61 1.57 1.57
--Loss and other MMT 9.56 10.01 9.83 9.83
Exports MMT 1 0.3 0.3 0.3
Surplus MMT 36.05 9.55 -0.19 -1.72
*2015/16 import volume shown in CASDE should be 3.2 mmt

The decline in corn area estimated by CASDE is 3.2 percent, slightly less than the 4 percent drop estimated by the National Bureau of Statistics planting intentions survey earlier this year. Another survey of over 5200 farmers in 22 provinces conducted in April found farmers planned to cut corn acreage by 10.9 percent.

The Ministry of Agriculture sent drought mitigation teams this week to western Liaoning, southeast Inner Mongolia, western Jilin, western Heilongjiang, northern Hebei and the Shandong peninsula. These areas have suffered from low rainfall, high temperatures, and windy conditions since April.

CASDE's June soybean S&D is unchanged from May. Some farmers in western Liaoning and easter Inner Mongolia were able to replant soybeans after rains came May 21-23, but young soybean plants were damaged by a late frost in parts of Inner Mongolia and Heilongjiang. Soybean area is setimated to be up 10.4% in 2017/18. Imports are expected to hit 89 mmt for 2016/17 and 93 mmt for 2017/18.

China soybean supply and demand (Ministry of Ag, June 2017)
Item Unit 2015/16 2016/17 June 2017/18 May 2017/18 June
Planted area 1000 ha 6,590 7,156 7,899 7,899
Harvested area 1000 ha 6,590 7,150 7,899 7,899
Yield Kg/ha 1762 1758 1785 1785
Production MMT 11.61 12.57 14.1 14.1
Imports MMT 83.23 89.45 93.16 93.16
Consumption MMT 96.67 103.69 108.59 108.59
--Crushing MMT 82.89 89.01 92.50 92.50
--Food MMT 10.35 11.18 12.04 12.04
--Seed MMT 0.54 0.6 0.6 0.6
Loss and other MMT 2.89 2.9 3.45 3.45
Exports MMT 0.12 0.14 0.22 0.22
Surplus MMT -1.95 -1.81 -1.55 -1.55

Cotton yield for 2017/18 was raised slightly, on good growing conditions. Imports were increased 100,000 mt to 1.1 mmt. Cotton stocks are expected to fall nearly 1.6 mmt in 2017/18.

China cotton supply and demand (Ministry of Ag, June 2017)
Item Unit 2015/16 2016/17 June 2017/18 May 2017/18 June
Begin inventory MMT 12.8 11.11 9.23 9.23
Planted area 1000 ha 3,267 3,100 3,200 3,200
Yield Kg/ha 1,510 1,555 1,523 1,572
Production MMT 4.93 4.82 4.88 5.03
Imports MMT 0.90 1.00 1.10 1.10
Consumption MMT 7.59 7.69 7.59 7.69
Exports MMT 0.01 0.01 0.01 0.01
End Inventory MMT 9.13 9.23 7.61 7.66

2016/17 China edible oil production is estimated at 26.57 mmt, up 270,000 mt from last month’s estimate. Cottonseed and sunflower oil production is expected to rise because of better cotton yields, and increased sunflower imports. Soybean oil production was reduced by 40,000 mt due to a downward adjustment in the proportion of domestic soybeans used for oil.

China edible oils supply and demand (Min Agriculture, June 2017)
Item Unit 2015/16 2016/17 June 2017/18 May 2017/18 June
Production MMT 25.29 26.57 26.85 27.07
--Soy oil MMT 14.74 15.58 15.92 15.92
--Rapeseed oil MMT 5.6 5.64 5.71 5.71
--Peanut oil MMT 3 3.18 3.24 3.24
Imports MMT 5.81 5.6 6.2 6.2
--Palm oil MMT 3.39 3.25 3.75 3.75
--Rapeseed oil MMT 0.77 0.75 0.85 0.85
--Soy oil MMT 0.59 0.58 0.58 0.58
Consumption MMT 31.29 31.46 31.63 31.63
--Urban MMT 21.01 21.5 21.65 21.65
--Rural MMT 10.28 9.96 9.98 9.98
Exports MMT 0.13 0.13 0.13 0.13
Surplus MMT -0.32 0.58 1.3 1.52

The 2017/18 estimate of sugar area is 14.72 million hectares, up 9% from 2016/17. Sugar cane area is estimated up 7.9% from last year; sugar beet area is up 16.1%. This month’s estimate of 2016/17 sugar imports is 3 mmt, reduced 500,000 mt from last month’s estimate. The forecast for 2017/18 sugar imports is 3.2 mmt, adjusted down 300,000 mt from last month. The main reason is the implementation of safeguard measures starting from May 22. Duties will be assessed on imports of sugar outside of the tariff rate quota for 3 years.

China sugar supply and demand (Ministry of Ag, June 2017)
Item Unit 2015/16 2016/17 June 2017/18 May 2017/18 June
Planted area 1000 ha 1423 1351 1472 1472
--sugar cane 1000 ha 1295 1183 1277 1277
--sugar beets 1000 ha 128 168 195 195
Yield




--sugar cane MT/ha 60.3 60 60 60
--sugar beets MT/ha 53.85 52.5 52.5 52.5
Sugar output MMT 8.7 9.29 10.47 10.47
--sugar cane MMT 7.85 8.24 9.23 9.23
--sugar beets MMT 0.85 1.05 1.24 1.24
Imports MMT 3.73 3 3.5 3.2
Consumption MMT 15.2 15 15 15
Exports MMT -2.92 0.07 0.07 0.07
Surplus MMT -2.32 -2.78 -1.1 -1.4

Tuesday, June 6, 2017

China Ag Imports Boom--Except for Corn

China's agricultural imports during the first four months of 2017 totaled $39.8 billion, up 17.2 percent from the same period last year, according to data issued by China's Ministry of Agriculture. Agricultural exports were $22.3, billion, up 2.3 percent.

Imports of most items grew at a robust pace, but corn imports were down 82 percent from a year ago, as China focuses on de-stocking its domestic inventory of corn. Sorghum imports were down nearly 20 percent, and imports of distillers grains--hit with antidumping duties this year--are down 77.8 percent. Cassava imports were steady and barley imports were up 170 percent.

China's wheat imports rose 94.1 percent from a year earlier due to tight supplies of good quality wheat in China. Tight supplies of good quality cotton also pushed cotton imports up 43.2 percent from last year.

Soybean imports were up 18 percent. Rapeseed imports rose 41 percent, as imports filled a gap left by lower sales of depleted rapeseed oil reserves.

January-April China Agricultural Imports
Commodity Imports Change from year ago
1000 metric tons Percent
Wheat 1,685 94.1
Rice 1,339 -0.6
Corn 310 -82.8
Sorghum 2,368 -19.9
DDGS 246 -77.8
Barley 3,269 170
Cassava 3,038 -2
Cotton 570 43.2
Cotton yarn 671 6.1
Sugar 1,087 30.9
Soybeans 27,537 18.0
Rapeseed 1,704 41.1
Palm oil 1,676 16.9
Rapeseed oil 335 -0.3
Sunflower oil 224 23.6
Soybean oil 145 13.8
Pork  453 11.8
Pork offal 433 6.6
Beef 216 16.6
Lamb 99 8.1
Milk powder 400 3.6

China Corn Auctions Cool Off?

Since early May, China has sold 21.3 million metric tons of corn from its massive reserve through 14 sales and auctions. There are doubts about whether the market can continue to absorb corn at this pace.

A mid-April 2017 survey found eight starch mills in northeastern China were operating at full capacity, and millions of tons of new capacity is under construction. The price of corn was down 30 percent from a year ago due to the cancellation of the temporary reserve program. Northeastern starch production had regained its competitiveness, and substitution of imported cassava starch is down. Export rebates for starch encouraged production, and processors were running at full tilt in anticipation of the June-30 end of subsidies for industrial processing of corn. Processors have built up unusually high inventories.

Cofeed.com estimates that starch production for the month of May was about 2.1 million metric tons, and they estimate capacity utilization at 75 percent. They estimate starch inventories were up 32 percent in May. Cofeed.com estimates that processors in most provinces are losing money.

According to another report from Cofeed.com, fuel ethanol production has also bounced back and China has swung from ethanol importer to exporter. In the first four months of 2017 China's ethanol exports totaled 42,701 liters, more than the export volume for all of last year. Traders say the export rebate and subsidies for processors revived export sales. Saudi Arabia accounted for two-thirds of sales, and North Korea was another buyer.

Analysis by Futures Daily sees signs that the pace of corn auctions is cooling off based on weakening prices and a decline in the proportion of corn sold in more recent auctions. Agricultural Futures Net agrees that a lower success rate in the June 1-2 auctions, high inventories held by processors in the northeast, and losses by starch manufacturers signal slower sales in June.

Saturday, June 3, 2017

China Plan Envisions Farm Business Transformation

China has unveiled a plan to turn its rural people into a legion of modern farmers. The State Council released "Ideas on Accelerating Formation of a Policy System to Nurture New-type Agricultural Businesses" on May 31, 2017. The document aims to create a prosperous countryside by nurturing diverse types of market-oriented moderate scale farms, cooperatives, and agribusinesses in place of the fragmented, small-scale subsistence farms that have covered China's rural hinterland for centuries.

The document calls for setting up a policy system to nurture new-type farm businesses by 2020 that will extend credit to farmers, open diverse market channels, provide training, recruit university graduates to serve as village officials, give farms and agribusinesses favorable tax treatment, and escalate spending on farm aid that complies with WTO rules.

China's Minister of Agriculture Han Changfu called the new-type farmer initiative an important document that helps rural people, improves rural people, and enriches rural people. Minister of Agriculture Han Changfu said new-type agricultural operators engaged in agricultural production and services are now in a key growth period, and they have a great need for guidance. Nationally there are 870,000 family farms, 1,888,000 farmer cooperatives, 386,000 agricultural industrialized business organizations (including 129,000 dragon head enterprises), and 1,150,000 agricultural socialized service organizations.

[By comparison, China's village collectives have nearly 250 million families with tiny land-holdings. China's National Bureau of Statistics reports 267 million rural people are engaged in nonfarm employment (either as migrants or near their homes). The rural population is estimated at 603 million and employment in "primary industry" is 219 million.]

No peasant will left behind. The plan emphasizes that China's modern agriculture will be built on the foundation of the family-based rural land contracting system adopted by most of the countryside during 1978-84, and it promises to retain rural households as the core of the new farming operations. Cooperatives and alliances will link farmers together; and service organizations and businesses will provide mechanical, pest control, technical advisory services, and agribusiness will link farmers with markets.

The plan adopts a market-driven approach that combines industrial policy and marketing of branded products with poverty alleviation, but it insists that government policy guidance is necessary. The plan also calls for "green" production, environmental protection, resource conservation and sustainable development.

A survey of 2615 family farms, farmer cooperatives, and agribusinesses conducted by Renmin University last year provided a more concrete picture of new-type ag business operators. The survey found that new-type business operators have a much higher level of education than traditional farmers, are younger, and more often men. They have larger scale operations, are more technically proficient, better financed, and utilize more social resources.

The survey evaluated farm businesses not just on their own success but also on their ability to lead and "pull along" rural people. Agribusinesses were most influential in providing loan guarantees, information, marketing, and employment. Half of farmer cooperatives paid dividends and shared profits with members, but the average coop had only 42.5 members. Family farms had little influence on their neighbors.

Officials hope new-type businesses will provide financing for small farms since rural commercial banks only give about 7 percent of their loans to farmers. The Renmin University study found that about a fifth of new-type farm businesses provided financial services to other farmers. About 16 percent made loans to farmers, and 17 percent guaranteed loans for other farmers. About half of agribusiness enterprises provide financing arrangements for purchases of inputs like livestock, feed, seed, or fertilizer. Many cooperatives had established internal mutual aid credit funds.

The survey found about a fourth of new-type farm businesses provide information to other farmers. Much of this appears to be feed and veterinary medicine companies providing farmers with information about their products and some technical advice. However, the report concluded that the coverage of rural households by such information dissemination is still small, and noted that information is seldom updated.

The survey authors estimated that new-type farmers influence only about 8 percent of the rural population and concluded that there is a lot of room for improvement in the leadership role of new-type ag business operators. Survey authors ascertained that the slowing Chinese economy had stifled progress on developing the rural leadership role of new-type farm business operations.

While the new-type farm business idea sounds innovative and visionary, it is basically a warmed-over re-launch of past efforts. A dragon head enterprise initiative launched in the 1990s had a similar objective of leading hordes of small farmers into big markets. Chinese leaders have reported huge numbers of cooperatives formed since a new cooperative law ten years ago, but enthusiasm among farmers seems to be lukewarm.

The plan to transform farming maintains the focus on profits and markets that has worked so effectively to enrich Chinese peasants since the 1980s. However, retaining collective land ownership, limits on size and scope of farmer organizations to keep their power in check, and monopolizing banking hamstrings new-type business operators, necessitating the big subsidy build-up envisioned to facilitate the transformation.

Monday, May 29, 2017

Dual Corn and Soybean Subsidies in China's Top Grain Province

Corn and soybean growers will each get subsidy payments for their 2017/18 crop in China's largest grain-producing province, as officials try to coordinate subsidies for different crops to engineer a shift from corn (China has a surplus) to soybeans (China has a shortage).

A May 9, 2017 announcement by Heilongjiang Province said farmers in the province will get subsidies based on the land area they plant in corn and in soybeans. The announcement promised that the soybean subsidy will be larger than the corn subsidy to encourage farmers to shift acreage from corn to soybeans, but the amount of the subsidies will not be determined until later in the season. Payments will be distributed to farmers by September 15, 2017.

The determination of the subsidies will occur over the next three months through a gigantic bureaucratic process. Statistical, financial, price bureau, and state farm officials at four levels of government will compile land area statistics and determine funding for the subsidies in order to set the payment per unit of land.

From June to August, officials in Heilongjiang's villages and state farms will compile information on farmer ID numbers, land plots, and area planted in each crop. They will publicly post lists of farmers and land area, giving farmers a chance to identify neighbors reporting exaggerated or false numbers. After the land numbers are verified, they are compiled and passed up to the county, prefecture, or state farm bureau. Only farmers who grow the crops can get subsidies. Farmers who rent land must have rental contracts that specify which party is entitled to the subsidy. Farmers cannot get subsidies for crops planted on land not designated for crop production or on illegally reclaimed land. Nor can farmers get subsidies for crops grown on land in the program that pays farmers to convert land to forests or grassland.

The central government will allocate a lump sum for each of the subsidies to Heilongjiang Province. Provincial authorities will then divide the corn and soybean subsidy funds among the counties, prefectures, and state farm bureau. These local officials will then determine the local subsidy by dividing the funds by the amount of corn/soybeans planted in their region. Thus, the amount of the subsidy for each crop will differ across localities within the province.

The dual payments for corn and soybeans in Heilongjiang are the latest development in China's evolving approach to subsidizing farmers. After China joined the WTO in 2001, officials began experimenting with subsidy payments. The national program launched in 2004 featured two subsidies, tax relief, and market-determined prices buttressed by a minimum price floor. One payment was intended to encourage use of improved strains of seeds, but it morphed into a subsidy for local seed companies. Another initiative was to give out small subsidies to grain farmers as a basic entitlement to build goodwill with the rural population. A third measure was to eliminate taxes on farmers collected by local officials. The grain marketing system was mostly privatized and a floor was set under wheat and rice prices.

The small payments proved ineffectual during the grain price spike of 2006-08 and the stimulus-driven inflation of 2009-12. Authorities then turned to jacking up floor prices to encourage farmers to keep planting grain and oilseeds. Raising soybean price floors in Heilongjiang was an immediate disaster because guaranteeing a price for domestic soybeans simply encouraged processing plants to import even more soybeans, leaving the government holding the expensive domestic beans. The soybean price floor lasted only four years and was replaced with a trial target price subsidy payment in 2014. The three-year target price trial was completed in 2016, and this year authorities elected to move to a subsidy payment not directly tied to soybean prices.

It took longer for authorities to realize the corn price floor was a disaster. Guaranteeing a minimum price for corn in Heilongjiang--where supply far exceeds demand--resulted in a massive glut now held by the government's reserve corporation. The corn price floor was finally abandoned in 2016 and replaced with a corn producer subsidy payment.

So this year Heilongjiang has dual subsidy payments for corn and soybeans. Farmers planted their crops based on an assurance that the subsidy for soybeans will be higher than the subsidy for corn. According to the announcement, farmers will also receive "guidance" to plant more soybeans.

Heilongjiang is also one of China's top rice-producing provinces and it also has a glut of this crop. In 2017, the minimum price for japonica rice was cut for the first time to prevent farmers from shifting land into rice--the only crop in Heilongjiang that still has a price floor.

Heilongjiang farmers also receive the "support and protection" payment for grain producers.

The dual subsidy payments for soybeans and corn are described by officials as a market-oriented policy that lets market prices determine supply and demand. Nevertheless, officials are still intent on tweaking subsidies to engineer the composition of farm output.

China Hog Prices Declining

Chinese hog prices are on the decline again after reaching record-high levels in 2016.

Pork market analysts writing in Farmers Daily last week observed that hog prices had fallen 15 straight weeks since the Chinese New Year holiday. The Ministry of Agriculture's weekly livestock price report released May 23--the day after the Farmers Daily article--showed another 2.6-percent weekly decline. The average hog price of 14.34 yuan per kg was 28.6 percent lower than a year earlier.

The Farmers Daily article attributed falling prices to a rebound in production prompted by historically high net returns of 200 yuan on a 115-kg hog in January. While authorities have closed many medium and small-scale farms in their campaign to enforce tighter environmental regulations, many large feed and meat companies are expanding aggressively. Many are building giant sow farms and recruiting farmers to fatten piglets they supply under a "company + farmer" business model. The Farmers Daily writers--analysts with the Chinese Academy of Agricultural Sciences and the Ministry of Agriculture--say sow numbers began to rebound in 2016. They think that the higher productivity of big, technically advanced sow farms is offsetting the constraints of environmental regulations by producing more pigs per sow. Supplies have also been augmented by farm closures that sent more hogs to slaughter.

Surging imports have added to China's pork supply. According to the National Bureau of Statistics, domestic pork production during the first quarter of 2017 was 14.68 million metric tons, up 0.2 percent from the same period in 2016. Customs statistics show imports of hog products totaled 684,800 mt, up 19.5% from the same period a year earlier. Of that total, imports of offal were 338,500 mt, up 17.9% from a year earlier, and imports of chilled and frozen pork were 346,200 mt, up 21% from a year earlier.

The Farmers Daily analysts think the hog industry is back in expansion mode. However, the expansion will be constrained by the cost of complying with new regulations that require hog farmers to invest in manure collection and treatment equipment. Thus, they see little room for further declines in price and anticipate that pork imports will remain at a relatively high level.

Saturday, May 13, 2017

China's Agricultural New World Order

China has announced ambitious plans for international cooperation in agriculture that aims to create a new world order in agricultural production, technology, and international trade.

"Vision and Action for Building 'One Belt One Road' Agricultural Cooperation," appeared in its Farmers Daily newspaper with authorship attributed to the Ministry of Agriculture, National Development and Reform Commission, and China's State Council. It was posted May 12, 2017, just in time for the "One Belt, One Road" to be held in Beijing May 14-15 with dozens of world leaders in attendance. "One Belt One Road" is China's initiative to revive ancient trade routes between Asia and Europe, and which also run through poor countries in Asia and Africa. In addition to building railways and other logistic infrastructure and investing in factories, China hopes to take the lead in sharing its successful experience in agriculture with the "belt road" countries, lower barriers to trade, share information and technology, and work together on plans, financing, and rewriting the rules of international trade.

The vision for agricultural cooperation is described as an exploration of new models for global governance. The lengthy essay lays out China's motivation, principles and actions for solving world hunger, fostering a new era of rising agricultural trade and investment, promoting sustainable development, and cross-border sharing of technology and information. The document says the complicated global economy and China's increasing interconnections with international agricultural markets create a great opportunity for China's "Belt Road" initiative.

According to the document,
"China wants to do whatever it can to bear much greater responsibility, contributing Chinese wisdom in building up the international food and agricultural governance system, and sharing China’s experience with countries along the belt-road path to make a much greater contribution to agricultural development and economic growth." 
The document says “One Belt One Road” runs through the Asian, European and African continents. It connects the "active East Asian economic sphere with an ancient history of agricultural development" on one end with the "European economic sphere where modern agriculture has a clear advantage" on the other end. In the middle is "a vast hinterland of abundant agricultural resources with huge development potential, each region with its own advantage in agricultural resources, technology, production capacity, and markets with strong complementarity."

One Belt One Road focuses on six major economic corridors:

  • Asia-Europe land bridge 
  • China-Mongolia-Russia 
  • China-Central Asia-West Asia 
  • China-Southeast Asian Peninsula 
  • China-Pakistan 
  • Bangladesh-China-India-Myanmar.

It does not include the American continent, but the magnanimous document insists that no countries are excluded. The document invites companies from all countries to invest in One Belt One Road.

China's concept of agricultural cooperation encompasses government-government exchanges, research institutes and companies. The document recommends a "3-in-1" platform in which all three types of entities collaborate. It also calls for exchanges of technical and management personnel, germplasm, and agricultural policy dialogues. Exchanges of farmers and private organizations are also encouraged.

The document calls for streamlining inspection and quarantine procedures, working together on prevention and control of animal and plant diseases, promoting cross-border e-commerce. China also proposes to rewrite trade rules, mandate traceability systems and "jointly regulate market behavior."

China's international agricultural cooperation strategy offers few specifics. It calls for "strengthening" existing multilateral organizations such as the World Bank, FAO, WTO, and various regional organizations in Asia, the Middle East, and Africa, as well as new institutions like the Asia Infrastructure Investment Bank created by China. The strategy also aims to use existing meetings and forums on international development and food security while also developing new platforms such as a “One Belt One Road” agricultural cooperation partnership mechanism, an "agricultural planning research exchange platform," and commissioning a “one belt one road” web site with agricultural resources as "platforms for mutual sharing."

The most concrete (no pun intended) proposals are to set up agricultural technology parks, demonstration centers, and training bases overseas. It also mentions a pilot program to build domestic agricultural foreign-opening cooperation districts in China.

The ambitious document is packed with idealistic rhetoric about addressing global nutrition and food security, "sharing", respect, equality, and mutual interests. It contains some I'd-like-to-teach-the-world-to-sing verbiage about "moving forward hand-in-hand" toward a future of agricultural abundance and sustainable, and green development. Rhetoric about "south-south cooperation" evokes Mao's abortive attempts to become a leader of the nonaligned countries which was the genesis of China's original round of foreign aid projects during the last century.

Breaking the global dominance of the United States is an unspoken theme of the "Belt Road" project and the agricultural cooperation initiative. The document identifies the global financial crisis in 2008-09 and market fluctuations due to financial speculation as responsible for the complex global economic situation, without blaming the United States by name. While the United States is never mentioned, the "multipolar world" subtext suggests that the world needs a magnanimous, sharing, wise China to create an alternative to the U.S.-dominated agricultural trade and multilateral organizations.

This is rich, coming from a country that keeps grain reserves a "state secret," hides soil contamination problems, arrests people for reporting facts published in newspapers, routinely responds to questions about its policies at the WTO with one-word answers, and has a decades-old policy of turning agricultural imports and exports on and off like a faucet to "balance" domestic supply and demand.

Thursday, May 11, 2017

MOA S&D Estimates May 2017

China's Ministry of Agriculture issued its May 2017 China agricultural supply and demand (CASDE) report which included the first estimates for the 2017/18 market year. The report shows a 2.9-percent decrease in corn production estimated for the 2017/18 crop to 213.19 million metric tons. The decline is mostly due to a 2.5-percent decrease in corn area planted.

China corn supply and demand (Ministry of Ag, May 2017)
Item Unit 2016/17 Apr 2016/17 May 2017/18 May
Planted area 1000 ha 36,026 36,760 35,840
Harvested area 1000 ha 36,021 36,760 35,840
Yield Kg/ha 5,978 5,973 5,948
Production MMT 215.33 219.55 213.19
Imports MMT 1 1 1
Consumption MMT 210.72 210.72 215.07
--Food MMT 7.82 7.82 7.89
--Feed MMT 133.03 133.03 135.03
--Industrial use MMT 58.25 58.25 59.75
--Seed MMT 1.61 1.61 1.57
--Loss and other MMT 10.01 10.01 9.83
Exports MMT 0.5 0.3 0.3
Surplus MMT 5.11 9.53 -1.19

However, the report failed to mention that it also raised its estimate of 2016/17 corn output to 219.5 mmt--2 percent higher than the estimate of 215.33 mmt it had reported for the last four months. Thus, the May estimate of the 2017/18 corn crop (213.19 mmt) is only 1 percent lower than last month's estimate of the 2016/17 corn crop (215.33 mmt).

With a higher production estimate for 2016/17, MOA's balance sheet now shows a 9.5-mmt increase in corn inventory for the current market year. MOA expects a small 1.2-mmt reduction in corn inventory during 2017/18--reflecting a 7-mmt decline in output and a 4-mmt increase in consumption.

The mysterious increase in the 2016/17 corn production estimate appears to reflect the CASDE authors' belated decision to adopt the National Bureau of Statistics estimate of 2016 corn output and sown area. The Ministry of Agriculture's estimate of corn output was 4-to-7 million tons less than the NBS estimate each month since last July. The lowest estimate was 212.45 mmt in October. The MOA estimate was 215.33 mmt each month from January to April. The MOA estimates remained lower than the NBS estimate after it was released in December--until this month. No other changes in the 2016/17 corn balance sheet were made this month.

MOA estimates that Chinese soybean area increased 10.4 percent this year, but the increase in soybean output anticipated for 2017/18 is only 1.5 mmt. Soybean imports are expected to rise by 3.7-mmt to 93.16 mmt in 2017/18. The 2016/17 import estimate was boosted nearly 3-mmt this month. They attribute the increase in soybean use during 2017/18 to recovery of swine production and the substitution of soybean meal for other oilseed meals. Food use of soybeans is estimated to grow 7.7 percent. MOA anticipates a decline in prices for both imported and domestic soybeans during 2017/18--spurred by falling international prices--while prices for other commodities are expected to be steady.
China soybean supply and demand (Ministry of Ag, May 2017)
Item Unit 2016/17 Apr 2016/17 May 2017/18 May
Planted area 1000 ha 7,156 7,156 7,899
Harvested area 1000 ha 7,150 7,150 7,899
Yield Kg/ha 1758 1758 1785
Production MMT 12.57 12.57 14.1
Imports MMT 86.55 89.45 93.16
Consumption MMT 100.81 103.69 108.59
--Crushing MMT 86.12 89.01 92.50
--Food MMT 11.18 11.18 12.04
--Seed MMT 0.61 0.6 0.6
Loss and other MMT 2.9 2.9 3.45
Exports MMT 0.2 0.14 0.22
Surplus MMT -1.89 -1.81 -1.55

The cotton balance sheet had only minor changes. MOA expects a small rebound in cotton output to 4.88 mmt in 2017/18. According to MOA, cotton producers in Xinjiang are more eager to produce after high net returns last year and stable expectations due to the announcement of the subsidy policy for the next three years. Imports will remain modest, at 1.1 mmt and consumption flat, at 7.59 mmt. MOA notes an acceleration of cotton imports during the first months of 2017 due to a shortage of good quality cotton. Cotton stocks will continue their decline from 9.23 mmt to 7.61 mmt during 2017/18.

China cotton supply and demand (Ministry of Ag, May 2017)
Item Unit 2016/17 Apr 2016/17 May 2017/18 May
Begin inventory MMT 11.11 11.11 9.23
Planted area 1000 ha 3,100 3,100 3,200
Yield Kg/ha 1,523 1,523 1,523
Production MMT 4.72 4.72 4.88
Imports MMT 0.90 1.00 1.10
Consumption MMT 7.59 7.59 7.59
Exports MMT 0.01 0.01 0.01
End Inventory MMT 9.13 9.23 7.61

The edible oils balance sheet includes modest increases in production for soybean, rapeseed, and peanut oils for 2017/18. MOA says vegetable oil supplies are tight despite the end of auctions of rapeseed oil from domestic reserves. Overall edible oil consumption will rise 0.5 percent during 2017/18 due to rising population and urbanization. The end of rapeseed oil de-stocking will prompt an increase in rapeseed oil imports. Domestic peanut oil production will rise due to high returns attracting an increase in domestic peanut output.

China edible oils supply and demand (Min Agriculture, May 2017)
Item Unit 2015/16 2016/17 Apr 2016/17 May 2017/18 May
Production MMT 25.3 26.11 26.3 26.85
--Soy oil MMT 14.74 15.37 15.62 15.92
--Rapeseed oil MMT 5.6 5.6 5.53 5.71
--Peanut oil MMT 3.01 3.18 3.18 3.24
Imports MMT 5.81 5.6 5.6 6.2
--Palm oil MMT 3.39 3.25 3.25 3.75
--Rapeseed oil MMT 0.77 0.75 0.75 0.85
--Soy oil MMT 0.59 0.58 0.58 0.58
Consumption MMT 31.17 31.43 31.46 31.63
--Urban MMT 20.95 21.4 21.5 21.65
--Rural MMT 10.22 10.03 9.96 9.98
Exports MMT 0.12 0.13 0.13 0.13
Surplus MMT -0.18 0.15 0.31 1.3

The 2016/17 sugar production season is coming to a close. According to the text of the CASDE report statistics show a 5.1-percent increase in sugar cane production to 8.1 mmt (the table shows 8.2 mmt), and a 27.7-percent increase in sugar beet output to 1.05 mmt for 2016/17. MOA expects a further 13.5-percent increase in overall sugar output for 2017/18 due to strong plantings prompted by higher sugar prices. With the decline in corn prices this year, MOA sees a substitution toward corn sweeteners that will keep sugar consumption steady at 15 mmt. Imports for 2017/18 are also projected at 3.5 mmt, about the same as this year.

China sugar supply and demand (Ministry of Ag, May 2017)
Item Unit 2015/16 2016/17 Apr 2016/17 May 2017/18 May
Planted area 1000 ha 1423 1349 1349 1472
--sugar cane 1000 ha 1295 1181 1181 1277
--sugar beets 1000 ha 128 168 168 195
Yield
--sugar cane MT/ha 60.3 60 60 60
--sugar beets MT/ha 53.85 52.5 52.5 52.5
Sugar output MMT 8.7 9.25 9.25 10.47
--sugar cane MMT 7.85 8.22 8.2 9.23
--sugar beets MMT 0.85 1.03 1.05 1.24
Imports MMT 3.73 3.5 3.5 3.5
Consumption MMT 15.2 15 15 15
Exports MMT 0.15 0.07 0.07 0.07
Surplus MMT -2.92 -2.32 -2.32 -1.1

Tuesday, May 9, 2017

Foreign Aid Boosts Rice Seed Exports

China's new "Aid + Market" initiative blurs the lines between foreign aid and commerce by using technical assistance projects as a platform to export hybrid rice seed.

The program was announced in conjunction with a 500-billion yuan (?!) agreement signed last month between Longping High Tech Agriculture Co. and the Sanya Municipal research institute to set up a foreign market research and development center in Hainan Province. Longping is a seed company formed by two Hunan Province rice research institutes in 1999. It is named after its figurehead, Yuan Longping, known as "father of China's hybrid rice." The company has carried out Chinese rice demonstration projects in Southeast Asia, South Asia, and Africa for many years.

According to 21st Century Business Herald, the new strategy is part of the One Belt One Road initiative which aims to build new trade routes from western China to Europe through Central and South Asia. Many of the Belt-Road countries grow rice, and Chinese companies like Longping High Tech plan to set up demonstration farms and agricultural parks to disseminate their rice varieties and provide training. Chinese foreign aid projects are implemented by companies like Longping High Tech.

Longping High Tech's foreign aid will serve the public interest by disseminating high-yielding hybrid rice while also creating market opportunities. A spokesman for the company said technical training has already helped many Southeast Asian countries become self sufficient in food. Longping brand rice seed has become popular in some countries. The company says it has trade relations with 40 countries and exported 4100 metric tons of rice seed during 2015.

According to a company official, working in Belt-Road countries is challenging due to poor irrigation, weak infrastructure, lack of inputs, lagging breeding technology, lack of extension and few agricultural technicians. China's seeds are approved only for planting in designated regions, may not be suitable for conditions in other countries, and some nations strictly limit import of rice seeds.

In 2015, Longping set up an international company to research localization of seed, processing and sales. The company already has R&D centers and breeding stations in Pakistan, Philippines, India, Bangladesh, East Timor, Indonesia, Liberia, Angola, Nigeria, and Ethiopia. The company has 19 varieties of rice approved or registered for use in Pakistan, Philippines and other countries.

CITIC Group, China's state-owned finance corporation, became Longping High-Tech's largest shareholder in 2016, giving the company financial resources for aggressive international expansion.

Saturday, May 6, 2017

Pig Farm Demolition Conflicts

In 2007, when pork prices were soaring to record highs Chinese officials rolled out a half-dozen pig subsidies and sent rural bankers to knock on doors offering villagers loans to build pig farms. Now--exactly ten years later--the manure from these farms has become a severe pollution problem. The same officials are paying farmers to demolish their farms and either move them out of sight in the hinterland or find another way to make a living.

The Masses Daily reported a story from Shandong Province's Liangshan County last month that shows not everyone is happy with the farm-closure campaign at the local level, and not everyone is getting compensated for destruction of their property.

In Han'gai, a town in Liangshan County, there are about 200 small-scale hog farms. All of them are about 500 meters from villages, but local people still complain about the smell and large numbers of flies. The main concern, however, is the large volumes of untreated manure that washes into rivers and streams during heavy rains. Concern about water pollution is especially acute here because the eastern south-north water diversion channel passes through this county, so officials worry that manure from farms pollutes the water being channeled to the parched north.

Last year the farmers in Han'gai Town were given notice that they would have to close. Officials advised them to switch to growing vegetables, mushrooms or something else. Farmers inquired with local officials about compensation for demolition of their farms and were dismayed to find they would receive none. The Han'gai farmers asked why hog farms have been banned in the entire town while surrounding towns had banned farms only in certain areas. "What are we farmers supposed to do?" asked the frustrated Han'gai farmers.

A local official said the compensation is only given to farms that are scaled-up and had gone through proper procedures. Since there were no such farms in Han'gai Town, no compensation would be paid.

State Council regulations outlining the livestock farm environmental makeover issued in 2013 stipulate that the county or higher level of government should compensate farms demolished or moved due to changes in industry plans, land rezoning or rectification programs. The Masses Daily reporter remarked that the local official's explanation shows that the regulations are fictitious.

A separate article says that compensation in most places falls far short of generous compensation standards in Tianjin Municipality that have been widely circulated on the internet. In another county in Shandong, farmers receiving no compensation have not paid off loans for farms that are now being demolished.

The Masses Daily article then explains that the farm-closure campaign is aimed at weeding out small-scale farms that do not adequately treat and utilize manure from their pigs. The environmental remediation favors large scale farms because they have the capital to build manure treatment, storage and processing facilities to utilize manure as raw material for bioenergy and fertilizer.

A new round of subsidies is targeted at large-scale hog farms. The 2013 State Council regulations endorsed support for scaled-up, standardized farms and encouraged backyard farms to shift toward concentrated modes of production. This year Ministry of Agriculture plans to build 500 model hog farms of 5,000 to 50,000 head which can get subsidies of 500,000 to 1 million yuan. Gansu Province announced aid of 100,000 to 250,000 yuan for farms of 1000 head or more. Big companies like Wens Group, Da Bei Nong, Zhengbang, and COFCO have planned projects to produce millions of hogs in northeastern and southwestern provinces that have been designated as suitable for expansion.

The Masses Daily reporter judges that denying compensation to small-scale farmers is unreasonable. A lawyer quoted in the article suggests farms ought to receive compensation just as homeowners should be compensated for demolition of their property.

The Masses Daily surmises that the conflicts between farmers and government over demolition procedures and compensation have grown to a point where they cannot be resolved. The reporter opines that "Farmers are facing a life-or-death game," where they face the loss of their means of livelihood.