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China to Sell Corn Reserves Soon, Analyst Says

SHANGHAI AND BEIJING, China (Agriculture.com) - The Chinese grain stocks, purchase intentions, and production estimates are always an issue of concern and subject of curiosity for the followers of the markets. 

However, when one goes to China it is relatively easy to find the reasons and the data that some folks may be eager to know in the U.S., South America, and around the world.

Perhaps because of China's censorship and cultural differences compared with Western democracies, when the country does make public its numbers and does not explain the reasons for its decisions, the guessing game begins.

In general, a lot of people do not feel very comfortable in China talking about food, and some asked not to be identified. Feeding 1.3 billion persons is one of the major concerns of its central government and keeping food security is a top priority. But in communism or other closed regimes, it will depend on the persons you talk to.

Shanghai J.C. Intelligence, a food consultancy that serves several 60 international companies and 1,500 firms in China, unveiled that the current corn stocks in the country are at 150 million tons, and there are ending stocks of 171 million metric tons. Adding to that, the consultancy projects that the output of the cereal wil be 216 metric tons with stunning average yields of 92.06 bushels per acre.

 

"Our crop is relatively well with productivity, and it is better than last year's crop. The El Niño phenomena brought good rains, and we just had a few losses in our Northwestern belt," said Chery Zhang, a director of the Corn Energy Feed Department at Shanghai J.C Intelligence, to Agriculture.com.

The average yields came up from 86.12 bushels per acre in 2011, and experts say that corn production may continue to increase, while the soybean production in the country tends to go down from the current 11 million tons – already lower from the 12 million tons registered in 2014. One of the reasons is that the country cannot increase its oilseed productivity, which is three times lower than that of corn.

Corn has a market fully controlled by the governments administrating directly the trading companies and subsidizing local farmers, while soybeans have a free market without any quotas. On corn, the government targets different importing quotas every year. In 2011, it was 7.2 million metric tons. In 2014, it was 7 million tons. After the quota, tariffs go up. Yet, it is always unknown when the government is going to sell part of its reserves.

"Nobody knows when, but the government will sell 50 million tons by anytime soon. Indeed, policy changing is what hurts the most Chinese, not infrastructure or scale," analyzes Cherry Zhang.

But Loren Puette, a Taipei-based analyst of ChinaAg and former employee of Fintract Inc., a USAID contractor, reveals what many observers have suspected recently. Blockades of corn and sorghum cargo in China, either because of inspections or GMO, are done to protect local farmers primarily.

"Nobody will be able to prove that is 100% the reason, but the imports are blocked for an economic reason, usually when local supply is high. They would be violating WTO laws if this is proven," affirmed Puette, when asked by e-mail. 

Most analysts also agree that GMO corn is a worry and will continue to be blocked. Another very interesting development throughout last years and months was the growing demand in China for sorghum as a replacement for corn. Also, with a local increase of production, the government may ban sorghum in the future and ramp up inspections and examinations.

"The demand for feedmeal will grow slower in the short-term and stabilize in the mid-term, impacting sorghum. Sorghum is the current alternative to corn quotas, but this can change. I forecast also stability for soybeans," predicts analyst Cherry Zhang.

Other trends of interest to U.S. farmers are the ones related to wheat. Australia, Canada, and the U.S. are currently the top three suppliers of the winter cereal to China, but the Chinese government may shift it to another market. "China is changing the supply chain network. They are seeking wheat from Central Asia suppliers to have alternatives," Puette told Agriculture.com.

As this story developed, the stock market started to crash in China. The Financial Securities Corporation lent US$ 42 billion for the purchase of blue chip stocks for the 21 biggest brokers in the country in order to revert some losses of the Shanghai Stock Exchange. Accounting from June, losses on equities overcame US$ 4 trillion. Yesterday, the Shanghai Index Composite crashed again with a fall of 8.5%. 

For British investment broker Adrian Bliss of the St. James's Place Wealth in Shanghai, the crash is a result of exaggerated incentives of the government for common citizens, without knowledge of the markets, to invest their savings.

"The State TV pushed people to invest their money saying that the country invested a lot in infrastructure. It was very easy to these investments. Taxi drivers did it through cell phone apps. But nobody wanted to see the bubble," explained Bliss to Agriculture.com, who also criticized aggressive brokers who "harassed" potential investors seeking a better commission.

But executives interviewed by Agriculture.com, mostly Brazilians, said that they will stand firm on their expansion plans in China, especially from the manufacturing sector, saying the crash was too small compared to the total economic output in the country.

The International Monetary Fund later maintained a significant forecast for the Chinese GDP with 6.8% for 2015, 6.3% in 2016, and 6% in 2017. Yet, the Chinese government announced a growth of 7% in the second quarter of this year, surprising many analysts.

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