Chinese corn crop down 10%
After field inspections, the US Grains Council estimates China’s 2009 corn crop will be 10% lower than in 2008, because of drought. China’s corn production will be 5.86 billion bushels compared to 6.53 billion bushels in 2008. The Chinese are the second largest producer and consumer of corn in the world.
China said that they will not increase corn imports to cover their corn shortage and are confident that instead, their stocks will cover the shortage. Recently it was reported that a Chinese mill bought several thousand tons of Thai corn over the past few weeks, according to Reuters.
If China is indeed importing corn to cover their shortage, it could affect corn prices. “Any large corn purchases by China, a net exporter of the grain until 2003, could spark a sharp run-up in corn prices which have lost a quarter of their value since its June peak on expectations of a bumper U.S. crop,” according to Reuters.
China does not want to allocate more farmland to corn because it would take away from other crops. There is a set acreage per crop in China that is not changed, in hopes to conserve farmland.
The US Grains Council estimates Chinese corn yields to be 79 bushels an acre compared to 88.5 bushels per acre last year, according to Brownfield Ag News. 79 bushels per acre is significantly lower than the US average of 161.9 bushels for 2009 according to the USDA’s WASDE. Estimated 2009 US corn yields are more than 5% higher than in 2008.
A 10% drop in corn production is significant for any country. Uncontrolled variables, like drought, can affect corn yields dramatically, supporting the need for large reserves. Even if China is able to survive their deficiency of corn this year on their own, their corn reserves are bound to fill back up.
The US Grains Council said, “The cost of importing U.S. corn and paying a 13 percent value-added tax and a 1 percent import duty into southern Chinese ports is about $21 a ton cheaper than shipping corn from northern China because of price differentials.”
If, or when, China imports corn, prices will increase because of the increase in demand for corn. Farmland values will then rise because of such an increase in demand for grains.