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China To Remain Big U.S. Ag Customer, Analyst Says

Growing Population Still Means Demand

The market today reacted with the New York Stock Exchange going lower with weak data of Chinese manufacturing. This has an indirect impact on the grain market, too.  

A couple of weeks back, China announced it would cut subsidies to grow corn, most people started to wonder if that would mean more or less demand for grain worldwide, given the complexity of the Chinese system.

American analyst based in Taipei (Taiwan), Loren Puette, director of China Ag and former employee of a USAID contractor, explains that China’s news can be misleading. Puette says China, pushed by its economic slowdown and the significant corn stock, will reduce substantially the subsidies to grow the cereal but would not eliminate.

According to the expert, the Chinese government may save nearly US$10 billion and is implanting a price-support program similar to what Brazil tries to practice in some commodities. The logic is to set a price floor target: If the market pays less than that floor, the government compensates the farmer with difference of that target.

Regarding the Chinese corn stocks of over 200 million metric tons, Puette forecasts that the government will be able to sell just about 25% of it. He and other analysts agree that China is unlikely to export significant volumes of the cereal. “Most of these stocks are stored on open air. A lot of it does not have the quality to be used. As of now, no one is really buying this corn,” he tells The USDA forecast Chinese corn exports of just 50,000 tons.

Another forecast of the analyst is that the corn surface in China will go down from 91.4 million acres to approximately 84 million acres. The soybean surface would go up from 14.8 million acres to 19.7 million acres. “This number indicates that prices will go down,” Puette points out.

Corroborating with the view of Puette, Pablo Altuna, senior grains manager at Toepfer International in Singapore, says the Chinese government decision will impact imports of sorghum, feed barley, and dry distilled grain, which had a surprising jump in the last few years.

“The fictitious prices of local corn have pushed imports of replacements like sorghum. There is an import quota for corn, but not for sorghum or barley. The Chinese government has tried to stop corn imports through quality control with its quarantine agency. In 2016/2017, we estimate 60% to 65% less imports of sorghum,” says Altuna.

China's economic slowdown

The Chinese stock market has gone up and down in the last few years. There is growing preoccupation with the housing market, and the Chinese government has reacted often with lower interest rates, currency rate changes, or spending more money, sometimes using the reserves. Experts say U.S. farmers can sleep well when the issue is Chinese demand for grains.

Puette affirms that the slowdown has hurt ag companies that are not financed by the stock market, but the demand for corn and soybeans will stay similar to previous years.

Altuna adds, “The Asian demand continues to grow; it never went down. Now, we have an oversupply of grain that may last one or two years, but it is not forever. The world’s population will continue to grow. The only thing that threatens the demand for grain is that Asian countries start to use more GMO to increase corn yields. I think we are far away from this.”

For Eduardo Ponticelli, an adviser for Brazilian companies at Ilec International Ltd. in Shanghai, the Chinese government is well prepared to fight the slowdown. “The slowdown is felt, but China has a lot of money in different forms that it will put in the right areas,” summarizes Ponticelli.

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