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USDA GAIN: Oilseeds, Cotton, Sugar, Grain and Feed


02 August 2012

USDA GAIN: China Grain and Feed July Update 2012 USDA GAIN: China Grain and Feed July Update 2012

For MY 2012/13, corn acreage and production is forecast to rise 2.7 and 1 percent to 34.3 million HA and 195 MMT. Due to relatively higher profit potential for corn, farmers switched soybean and cotton acreage for corn in Heilongjiang, Jilin, and other provinces in the north China plain. MY 2012/13 total wheat production is forecast to decrease from 117.4 MMT to 108 MMT on high temperatures and fusarium graminearum (or commonly known as head blight) in major winter wheat production provinces such as Henan, Anhui, Jiangsu, Hebei, and Shandong. Based on field trip surveys and interviews with industry contacts, Post estimates that winter wheat production will be down 8 percent.
USDA GAIN Report - Oilseeds, Cotton, Sugar, Grain and Feed

Executive Summary:

For MY 2012/13, corn acreage and production is forecast to rise 2.7 and 1 percent to 34.3 million HA and 195 MMT. Due to relatively higher profit potential for corn, farmers switched soybean and cotton acreage for corn in Heilongjiang, Jilin, and other provinces in the north China plain. MY 2012/13 total wheat production is forecast to decrease from 117.4 MMT to 108 MMT on high temperatures and fusarium graminearum (or commonly known as head blight) in major winter wheat production provinces such as Henan, Anhui, Jiangsu, Hebei, and Shandong. Based on field trip surveys and interviews with industry contacts, Post estimates that winter wheat production will be down 8 percent.

Corn

For MY 2012/13, corn acreage and production is forecast to rise 2.7 and 1 percent to 34.3 million HA and 195 MMT. Due to relatively higher profit potential for corn, many farmers switched soybean and cotton acreage for corn in Heilongjiang, Jilin, and other provinces in the north China plain.

Based on farm surveys in selected areas in the northeast, farms costs rose slightly from last year, most likely due to higher oil and energy prices. Labor costs were generally unchanged from 2011, ranging from 80 to 100 RMB per mu. However, farmers complained it was getting harder to find hired labor as more people continue to migrate to the cities to find higher paying jobs. Machinery costs for ploughing and/or planting rose around 5 to 10 RMB per day from the previous year (harvest is generally done by hand and occurs in the fall). Water costs averaged around 10 to 30 RMB per mu for 5 to 7 hours of usage. If available, water is pumped from underground wells, although some farmers may pump water from canals (this water may be recycled from upstream). Farmers own their own pumps, although some may be supplied by the village for community use. Fertilizer costs rose around 20 to 30 RMB per kilogram. Fertilizer application is extremely high, averaging between 1 to 1.4 tons per HA. Seed prices generally were unchanged. Seed varieties ranged from Zhengdan958, 21, 771, and Pioneer335. In some areas, because seeds were planted too shallow, fertilizer burned the seed.

Not all farmers choose corn seed varieties based on scientific facts or performance potential. For example, a farmer mentioned that this year he switched seed varieties not due to quality or price competiveness but because he felt using the same seed year on year would adversely affect soil health. Others stated they excessively use fertilizer because they believed it would help increase yields, although there is a limit to how much fertilizer can help in production. Many farmers complained about counterfeit products, ranging from seeds to fertilizer. They did not want to invest in a higher priced, higher quality product for fear that, if fake, it would lower their overall profit margins. Reportedly, there are a lot of companies that develop and distribute fake products.

For the first half of the year, industry contacts reported that industrial corn processing eased due to reduced demand for starch and ethanol in the industrial sectors, as well as a slowing economy. To date, most ethanol or starch manufacturers have been running at a capacity of around 45 percent (compared to 50 percent last year). Starch use in industrial sectors includes paper making, textile, and food processing. Ethanol use in industrial sectors includes pharmaceutical and chemical industries.

Corn Trade

MY 2012/13 corn imports are revised down to 5 MMT on expectations of higher U.S. corn prices (due to poor weather conditions). That being said, Chinese corn demand is predicted to remain strong on continued growth in the livestock and industrial sector, which is anticipated to continue pressuring Chinese domestic corn prices. Higher Chinese corn prices may stimulate further private or Chinese state government purchases of imported corn. These imports could come from Argentina or Brazil if a phytosanitary protocol or GMO issues are resolved in the next marketing year (see paragraph below).

In 2012, Argentina acquired corn market access to China. However, reportedly certain GMO corn varieties grown in Argentina have not been approved by the Chinese Ministry of Agriculture (MOA). It is unclear when this approval may be granted. Brazil may also acquire Chinese market access if an agreement is reached for a phytosanitary protocol for corn, but it is unclear if there also are GMO approval issues.

Chinese state media reported that in 2012 China and Ukraine signed a framework agreement on cooperation in agriculture that included a clause that China will extend a loan to Ukraine to develop its agricultural sectors (including grain production). However, reportedly the terms are that Ukraine must annually export 2.5 to 3 MMT of corn to China to repay the Chinese loan. It is unclear when exports might begin, as there is no quarantine protocol between Ukraine and China. Establishing a protocol can take many years.

Wheat

MY 2012/13 total wheat production is forecast to decrease from 117.4 MMT to 108 MMT on high temperatures and fusarium graminearum (or commonly known as head blight) in major winter wheat production provinces such as Henan, Anhui, Jiangsu, Hebei, and Shandong. Based on field trip surveys and interviews with industry contacts, Post estimates that winter wheat production will be down 8 percent.

Although Chinese government data predicts an increase in winter wheat production, Post field survey findings are not as positive. On July 10, 2012, the National Statistical Bureau (NSB) reported that the MY 2012/13 winter wheat production was up 3 percent (3.34 MMT) to 114.3 MMT on higher yields. NSB believes production increased due to favorable weather, government support programs, better field management, and effective disease/pest control. In July, China National Grain & Oil Information Center (CNGOIC) estimated that MY 2012/13 winter wheat and total wheat production rose 0.7 and 0.5 percent to 111.7 MMT and 118 MMT. MOA also recently released an announcement stating that fusarium graminearum is under control and did not affect the winter wheat crop. Apparently MOA had a campaign to spray many wheat fields to contain the disease, but it is unclear if the campaign effectively addressed the problem on a national scale. Interviews with industry contacts and Post field survey findings reveal that head blight had spread to more areas than normal this year, which is expected to affect overall production and available supplies. Affected areas included southern and eastern Henan province, southern Hebei, and western Shandong. According to local media, trade sources, and insurance companies, the disease also affected wheat in Anhui and northern Jiangsu.

Although fusarium graminearum normally affects Chinese wheat on an annual basis, this year higher plant density may have caused the disease to spread over larger areas. According to interviews, in MY 2012/13, farmers applied on average 15-20 Kg of seed per mu. In 2007, farmers applied 10 kg of seed per mu or less. Reportedly, many wheat heads had yellow, white, and black spiklets, with many containing no kernels or smaller shriveled kernels. Farmers said they were unable to apply fungicide to control the disease. During the flowering (or pollination) stage (which occurs around May 10-20 in Henan and Shandong), some farmers noted high moisture and low temperatures, which may have further exacerbated the disease. Some farmers also said that high temperatures caused poor pollination, and wheat yields were negatively affected by a higher level of pests such as aphids and red spiders.

According to industry contacts, extremely hot weather might have lowered wheat test weights as the grain ripened. From June 1-10, parts of Henan, Shandong and Hebei provinces experienced temperatures reportedly as high as 38 degrees Celsius, or 100 degrees Fahrenheit. Some industry contacts believe that temperatures higher than 36 degrees Celsius, or 96.8 degrees Fahrenheit, can cause kernels to be smaller than normal. However, dryer weather also can increase protein levels.

For MY 2012/13, many grain purchase stations reported lower test weights and higher rate of unsound kernels (which could be disease infected or smaller due to stress). For example, some feed mills noted that the test weight for Henan wheat is around 750 grams per liter, while for other years it generally is above 770 grams per liter. Contacts also reported higher rates of unsound kernels, with one dealer reporting it as high as 10 to 17 percent of purchases, while it was less than 8 percent last year. Some flour mills estimate that the flour milling rate might be down by 2 to 5 percent due to lower test weights.

New crop wheat purchases are generally based on visual and quality tests (test weight and moisture levels), which allow the product to be graded domestically. Grading does not necessarily include sanitary testing. Flour and feed mills that have already purchased the new crop wheat may not test the crop for toxin levels for a couple months, so it currently is unclear how much of the wheat may be affected by toxins (vomitoxin (De-oxynivalenol (DON)) or zearalenone). Grain dealers may not be directly involved in testing the wheat. Wheat with higher toxin levels may be sold on the market as lower quality wheat, which may be utilized for feed use (see Feed section).

Photos Comparing 2011 and 2012 Chinese Wheat

Wheat in Eastern Nanyang, Henan, 2012

Wheat in Kaifeng, Henan 2012

Wheat in Xinhe, Shandong, 2011

The Ministry of Health and Ministry of Agriculture have published standards (GB2715-2005) and (GB 13078.2-2006, GB20833-2007 and GB13978) on acceptable toxin levels for humans and livestock. Flour and feed mills are required to follow these standards before selling product to the public.

Toxin Levels for Grains for Human Consumption (Ministry of Health Standard GB2715-2005)


Toxin Levels for Grains for Livestock Consumption (Ministry of Agriculture Standard GB 13078.2-2006, GB20833-2007, and GB13978)

Wheat Trade

For MY 2012/13, wheat imports are estimated down to 2 MMT on expectations of high international wheat prices due to lower global exportable supplies. Potential lower supplies of high quality Chinese domestic wheat (e.g. lower test weights) may also foment import demand.

Rice

For MY 2012/13, rice acreage and production is unchanged from the last grain update. It is still too early to predict the impact of diseases and pests on production.

In July 2012, the Ministry of Agriculture (MOA) urged provincial agriculture departments to help farmers control the potential spread of pest or diseases on rice production. MOA predicts that during the second half of 2012, excessive rainfall, as well as pests and diseases such as the rice plant hopper, rice leaf roller, rice blast, and rice black-streaked dwarf virus could affect many parts of south, southwest, and northeast China, or 40 percent more acreage than last year (1 billion mu). Through early provincial interventions, MOA hopes total national production losses will be less than 5 percent.

Rice Trade

MY 2011/12 and MY 2012/13 rice imports are revised up to 1.5 MMT. For MY 2011/12, imports are revised due to favorable prices and relatively high profit margins for imported rice. Moreover, the Chinese government utilized the state TRQ for importing Indica rice from Vietnam and Pakistan, most of which was shipped to rice mills in south China provinces. For MY 2012/13, Post forecasts Vietnam and Pakistan rice to remain price competitive on high exportable supplies.

Feed Consumption

For MY 2012/13, wheat substitution for corn in feed is expected to remain high. Reportedly, feed mills can add absorbents to reduce toxin levels (an added cost), which may allow fusarium graminearum affected wheat (with high ppm levels) to be safely used to produce compound feeds. Although it is not clear on how much of the new crop has a high toxicity level (see wheat section), supplies of feed quality wheat may be higher than normal (less available for food use), which may keep feed quality wheat prices competitive over corn. Because domestic corn prices are expected to remain elevated (see corn section), even the additional cost of absorbents (to lower toxin ppm levels) may not inhibit future wheat purchases for feed use.

Wheat continues to be used as a substitute for feed products. For duck and grower and finisher pig feed, some industry contacts believe that wheat can completely substitute corn in feed formulas. For other livestock feeds, substitution ranges from 10 to 60 percent. In major wheat producing provinces (north China plains region) such as Henan, Hebei, and Shandong, domestic winter wheat is used in feeds, while in south China (e.g. Guangdong province) imported wheat is a common substitute. In the northeast region (a large corn production area), since the summer of 2011, feed mills have reportedly begun utilizing locally produced spring wheat due to competitive pricing.

Some industry contacts contend that improved feed processing technology (including the use of enzymes) allows for a higher utilization of wheat in feed formulas, and does not affect meat quality (taste or appearance). However, others have noted that higher wheat percentages may change feed taste, making it unpalatable for hogs.

Due to high animal inventory and sluggish consumption, for the first half of 2012 swine sector profits fell by a large margin. Compound feed sales continued to rise from last year, but not as strong as expected. Many household farms switched to concentrate feed to reduce their operational cost. Prices may recover later in the year for major festivals and holidays, such as Chinese National Day and the Mid Autumn Festival in September and October. Moreover, continued low hog prices or profit margins may encourage more small and backyard farmers to exit the business, which may drive further hog farm consolidation and higher compound feed demand (see Grains Annual CH12022).

Price Tables:

China Average Corn Prices in 2010-2012
(Sources: China JCI)


China Average Wheat Prices in 2010-2012
(Sources: China JCI)


China Average Early Season Indica Rice Prices in 2010-2012
(Sources: China JCI)


China Average Japonica Rice Prices 2010-2012
(Sources: China JCI)

August 2012

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