Last month, China’s National Bureau of Statistics (NBS) released revised area, yield, and production estimates for corn, wheat, and rice from 2007/08 through 2017/18. This month’s Supply and Demand balance sheets for China incorporate the NBS revisions. Details can be found on the USDA World Agricultural Supply and Demand Estimates Historical Revisions page.
Corn: The NBS revision adds a cumulative 266 million tons to production for the 2007/08-2017/18 period. While just over a half of the additional volume is added to stocks, total domestic consumption is adjusted to reflect greater use for feed and residual disappearance and fuel ethanol.
The level of stocks rises sharply starting in 2013/14 reflecting government support programs at the time. Despite large stocks, any potential boost to exports should be minimal as China’s corn is currently more expensive compared to world levels. Imports remain unchanged.
Wheat: The NBS revision adds a cumulative 20 million tons to production for the 2007/08-2017/18 period. Most of the increase is added to stocks, with only a small addition to feed and residual use. Revisions were not made to food, seed, and industrial use as per-capita consumption appears to be relatively stable. China’s stocks are forecast to account for over half of global wheat stocks but are generally not accessible to world markets.
Rice: The NBS revision adds a cumulative 18 million tons to production for the 2007/08-2017/18 period. Most of the increase is added to stocks as rice is primarily used for food and per-capita consumption appears to have remained relatively stable. China’s stocks are forecast to account for more than two-thirds of global stocks, which are now at a record.
Despite lower rice and wheat production in 2018/19, stocks are still forecast to climb, though at a slower expected rate. Auctions of both rice and wheat stocks have resulted in limited sales from state reserves in contrast to the rapid pace of sales from corn stocks.
North America Dominates Global Durum Exports
Durum wheat is commonly used for food products such as pasta and couscous. Canada is by far the world’s leading exporter of durum. In 2017/18, Canada exported more than 4.0 million tons of durum, with the majority of those shipments destined for Algeria, the United States, and Morocco. Exports to Italy, formerly Canada’s largest market, have fallen substantially in light of Italy’s 2017 country of origin labeling rule.
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Mexico, a distant second in global durum exports, shipped mostly to Venezuela and Algeria in 2017/18 as shipments to Turkey and Italy dropped off substantially from previous years. This wheat lacks the higher quality factors of Canadian supplies and is generally less preferred for quality-focused pasta markets. Mexican durum is popular in Algeria for making couscous but is still only the second-leading supplier to that market, behind Canada.
The European Union is the top producer of durum wheat but remains a net importer due to strong internal demand. France and Spain export durum, mainly to other EU countries and North Africa. Italy is the primary durum importer in the region based on strong historic demand for pasta as well as exports of pasta products. In recent years, Italy’s slowing imports from North America have been partly offset by larger purchases from France, Kazakhstan, and Russia.
U.S. Durum Prices Down with Rebound in Crop
Based on better growing conditions this season, U.S. durum production is up 41 percent from last year’s drought affected crop. The monthly farm-level price for durum is down significantly from last year and exports are projected up more than 70 percent. Most U.S. exports go to Algeria and Italy, competing with Canada.
However, U.S. production is still insufficient to meet domestic use, so the United States is expected to continue as a net importer of durum with nearly all of its imports coming from Canada.
Bangladesh Imports Decline on Larger Crop
Rice production in Bangladesh has been revised higher this month on larger crops for the recently completed aus and current aman seasons. Total 2018/19 production is now forecast up nearly 2 million tons compared to the prior year. As noted in the June 2018 Grain World Markets and Trade Report, the government reinstated a higher import duty at that time in light of higher domestic production. The import pace has proven to be lackluster since then, resulting in a sharply lower estimate this month of 600,000 tons for 2019 imports.
Black Sea Supplies Add to Global Competition
Corn production in the Black Sea region (Ukraine and Russia) is projected to rebound to a record 44.8 million metric tons in 2018/19. With rising acreage and improving yields, the Black Sea region is increasing its footprint as one of the key global suppliers of corn.
Despite increased production, however, domestic use is still lagging. Limited growth in the domestic livestock sectors, due to disease issues and economic uncertainty, has capped livestock and poultry feed use. Food, seed, and industrial use is stagnant, and storage capacity is neither abundant nor economic.
As a result, exports from the Black Sea are projected to rise in 2018/19. The Black Sea region has historically supplied the European Union market, as well as emerging economies in North Africa and the Middle East. Both Ukraine and Russia have been able to supply these key markets based on proximity to markets, small cargo sizes, shorter shipping times, and competitive pricing. As part of economic partnerships, China has been a steady destination for Ukraine corn.
With abundant supplies in key exporters, competition has become increasingly fierce in the grains market. Black Sea suppliers compete indirectly with U.S. exports, driven by export oriented commodity sectors, tepid domestic demand, bio-tech free corn, and lower prices. Currency volatility in Brazil and export policy changes hindering Argentina will help further solidify the Black Sea as a key supplier during 2018/19.
Strong Chinese Demand Supports Prices
Various trade sources have noted that China has sold around 100 million tons of corn from the reserves via auctions through the end of October 2018. The volume represents nearly 40 percent of forecast domestic consumption for 2017/18. Despite that huge volume coming onto the market, prices in the key consuming and producing regions have remained elevated even at harvest time, reflecting strong demand for corn.
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Domestic prices moved up earlier this year likely supported by various factors, such as greater use of corn feeding due to competitive prices relative to soybean meal and the rush to expand fuel ethanol production in response to the blending target of 10 percent (E10) nationwide by 2020. In addition, the government announced in February the investigation of anti-dumping and countervailing duties on imported sorghum from the United States (The investigation was dropped when punitive duties were removed in May).
Convergence of these developments may have contributed to the run-up in prices in anticipation of greater demand for corn. Prices eased in the spring, but bi-weekly auctions have continued, steadily adding a large amount of corn — comparable to Brazil’s entire corn crop — to the market. Regardless, the level of prices has remained higher than a year ago and even strengthened in recent months.
Demand for corn in China is expected to remain strong supported by greater industrial use and limited supplies for alternative feedstuffs that depend on imports, mainly sorghum and distillers’ dried grains. The recent announcement by a feed association advising a lower inclusion of protein in feed rations as well as rising prices for soybean meal could further boost demand for corn.