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As China reforms its corn market, farmers switch to growing soybeans

* Soybean output seen rising with more acreage, better seeds

* Domestic corn to trade near global price without govt
support Scope for improving yields if GMO technology embraced

* Higher ethanol production may flood market with DDGs

By Naveen Thukral and Niu Shuping

SINGAPORE/BEIJING, April 4 (Reuters) - Wang Zhonghai,
a 49-year-old farmer in China's top corn producing province of
Heilongjiang, plans to switch 80 percent of his land to
cultivate soybeans this year as the government ends a near
decade-old corn price support scheme.

China announced last week it will stop its corn stockpiling
programme and allow markets to set prices - a move that should
transform the agricultural landscape as farmers shift to more
lucrative crops like soybeans, rice and peanuts.

Rising demand for a protein-rich diet in China has since
2001 triggered a six-fold jump in imports of soybeans, which are
crushed to make soymeal, an animal feed ingredient, and cooking
oil.

Higher output in China, the world's top soybean importer,
will hit farmers in top producers Brazil, the United States and
Argentina. The trio have presided over a soybean boom, helping
nearly double world production over 15 years.

"We calculated and to grow soybeans would give better
returns than corn which gives no profit after the price drop,"
said Wang, who has grown only corn on his 6.7 hectare (16.5
acre) farm for years in Hule village in Heilongjiang.

"Soy prices have picked up and with government soy
subsidies, we may be able to make 700 yuan-800 yuan ($108-$124)
per hectare," said Wang, adding that around a third of farmers
in his village had plans to shift to soy.

Wang said farmers did not know what subsidies Beijing would
provide instead of a guaranteed price if they grew corn, but he
was confident corn prices would fall.

In 2016, China's soybean output is expected to rise by up to
2 million tonnes and increase faster in future years with
improved seed technology and a bigger acreage, analysts and
traders said.

"Many farmers plan to shift to grow rice and peanuts, about
10 percent of the farmland would be shifted to soybean," said
Wang Fuqing, head of the Hule Modern Agricultural Machinery
Cooperative.

China's support for corn saw the area under cultivation hit
37 million hectares last year, up from 23 million hectares in
2001, according to U.S. Department of Agriculture data.

In contrast, soybeans was grown on 6.8 million hectares in
2015, down from 9.3 million hectares 15 years ago.

"We know that soybeans and corn compete for acreage, so
China's support for corn prices pushed all those soybean acres
into corn as it made more profit to grow corn," said Adam Davis,
head of commodities at Merricks Capital, a Melbourne-based
agricultural fund.

"If it goes back to free market you could certainly see
acreage go back to soybeans."

Farmers are expected to make a bigger shift next year as
corn falls nearer international prices. Corn has traded at an
almost 50 percent premium to world prices in China.

A shift of one to two million hectares to soybeans from corn
would be the equivalent of a month's soybean imports for China,
said Ken Morrison, a former Cargill executive who publishes a
commodity newsletter.

"I think the attention to the impact on global corn is
overdone, and I think the attention to the implications of what
it will mean to Chinese soybean production is under
appreciated," Morrison said.

COTTON SHOWS THE WAY

China, which ended price support for cotton in 2014, is
forecast to see cotton acreage decline to 3.4 million hectares
in 2015/16 from 5.5 million hectares in 2011/12, USDA data
shows.

Cotton imports have dropped while the gap between
international and domestic prices has narrowed since Beijing
stopped paying prices well above the global market.

There could also be scope to improve soybean yields,
including by using genetically modified organisms. Though
Beijing has been cautious so far, ChemChina's $43 billion
purchase of Swiss seeds and pesticides company Syngenta
could bring Chinese planting of GMO soybeans
closer.

China produces 1.8 tonnes of soybeans per hectare, well
below the 3.2 tonnes of output in the United States.

Boosted by GMOs, annual global soybean output has jumped
nearly two-and-half times to 319 million tonnes since 1980.

FLOOD OF DDGs

A move to liquidate massive corn stockpiles will also
disrupt meal and vegetable oil trading in China and Asia, said
grains analyst Roy Huckabay at Chicago brokerage the Linn Group.

China is sitting on close to 250 million tonnes of corn,
enough to fill Beijing's Bird's Nest stadium around 34 times.

If lower quality grain from state reserves is processed for
ethanol, the market would be flooded with byproduct distillers
dried grains with solubles, he said.

Some farmers were taking a cautious approach before
switching crops, said a local government official at Tailai
county in Heilongjiang.

"Many farmers are holding a wait-and-see attitude because
some are still hoping that corn prices may rise again and they
are waiting to see how much subsidy the government offers."
($1 = 6.4646 Chinese yuan renminbi)

(Additional reporting by Tom Polansek and Karl Plume in
CHICAGO; Editing by Ed Davies)

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