Doctor Fan Shenggen, director of the International Food Policy Research Institute (IFPRI), did not expect his comments criticizing China’s soybean policy of having double standards regarding GM soybeans at a meeting in China to incite resentment from America.

After the meeting upon returning to IFPRI headquarters in Washington, he received numerous calls and emails from American governmental organizations, representatives of grain giants and grain associations, informing him his words had gone against WTO principles of free trade.

Fan Shenggen is also the director of the international agriculture and rural development research center under the Chinese Academy of Agricultural Sciences. An internationally renowned grain expert, he believes China has made a strategic error regarding soybean policy which has led to the defeat of China’s non-genetically-modified (GM) soybean by its imported counterparts.

Actually, Fan Shenggen believes worries about China’s corn sector are more urgent and realistic. China’s corn imports increased by 56 times in the first seven months of this year on the level of the same period last year, totaling 282,000 tons. It imported 194,000 tons of corn in July, 148 times more than the previous July.

A Surge in Imports

Though this may not sound like much, this is the first time in 15 years that China has imported corn on such a large scale. The Financial Times has stated that, “the high growth rate of China’s corn imports has triggered people’s fears about the potential influence of China’s grain safety on the global agricultural commodity markets.”

Chicago corn futures have increased by over 50 percent in the past three months, reaching a historical high. Futures experts believe that this price increase is unreasonable and triggered by speculation.

However, other market players, the United States Department of Agriculture, and its Soybean Export Council and Grain Council, are full of high expectations. They even believe that China’s corn market will be as huge as its soybean market.

According to public reports, Thomas C. Dorr, President and CEO of the US Grains Council said recently that American corn providers might use their many years of experience opening China’s soybean market to open China’s corn market and eliminate Chinese people’s concerns about the safety of GM corn.

However, Chinese people’s views on GM corn are still greatly divergent.

In April the media reported that the New Hope Group, China’s largest private feed grain producer, imported a large amount of GM corn from America, which aroused public concern. Meanwhile, industry insiders are questioning the official figures on China’s corn storage.

The EO has learned from an anonymous source with the Ministry of Agriculture that up until now, China has imported 1.5 million tons of corn from America and has reached an agreement with the Argentinean government to import 5.5 million tons of corn in 2011.

America and Argentina are the two largest corn exporters in the world and almost all of their corn exports are GM corn. America’s corn exports account for 50 percent of global corn exports while Argentina accounts for less than 30 percent.

According to the above source, all of China’s corn imports for this past year and planned for next year are genetically modified. China’s largest state-owned corn importer is China National Cereals, Oils and Foodstuffs Corporation (COFCO) and its largest private corn importer is New Hope Group.

While the National Development and Reform Commission, the Ministry of Agriculture and the State Administration of Grain have attributed the explosion of China’s corn imports to the price gap between foreign and domestic corn, an anonymous high-level executive of the China Grain Reserves Corporation attributed the high imports to the official corn reserves being less than those of wheat and rice.

Fan Shenggen hopes China will not make the same mistakes regarding corn policy as it did with soybean. Latest statistics show, the dependence on foreign imports of China’s soybean sector has risen to 78 percent, and as early as several years ago foreign companies accounted for over 70 percent of China’s oil processing capacity.

The Myth of China’s Corn Reserves

China’s corn output and consumption volume have both exceeded 150 million tons in recent years. Around 90 percent of corn is used for feed and industrial consumption. Compared with wheat and rice, it is easier for corn to be influenced by the macro-economy.

The National Bureau of Statistics has revealed that China’s corn output reached 329.7 billion jin (a unit of measurement equal to 0.5 kg) last year, 3.9 billion less than that of 2008 while its corn consumption volume was 296.7 billion jin, a 7.8 billion jin increase on the level of previous year. A China Grain Net report has predicted that this year China will have a corn output of 330 billion jin.

Though it was widely believed that China’s corn output would be greatly reduced last year due to the major droughts suffered by China’s main corn production areas, data from the National Bureau of Statistics has shown that China’s output still exceeded demand. However, the data was kept secret until May and its accuracy was widely doubted when it was finally released.
Since March, the price of corn has increased progressively following the price surge of garlic and mung beans. It reached such a high price by April that even the National Development and Reform Commission and the State Administration of Grain were surprised. To rein in the corn price, the central government started a temporary auction of corn reserves on April 13. However, despite the sale of all corn reserves up for auction, the price of corn kept rising.

In the last ten days of May when the auction of corn reserves had been halted, the central government revised the trading rules of corn reserves so as to prevent corn processing companies from blindly hoarding corn, and continued releasing corn reserves; the price of corn decreased slightly. But less than a month later the price of corn resumed its upward climb and in August reached a new historical high of 1,976 yuan per ton.

Although at that time the price of wheat and rice also increased, the EO has learned from the National Development and Reform Commission, the Ministry of Agriculture and the State Administration of Grain that the central government is more concerned about the increase of corn prices. These three ministerial agencies have released dozens of policies to rein in the corn price increase.

The Strength of Downstream Sectors

What continued to drive up corn prices despite the Chinese government’s successive measures to tackle the increase?

While the National Development and Reform Commission and the State Administration have attributed the price rise to hot money, companies’ hording practices and farmers’ deciding to keep corn off the market, the EO has learned from many industry insiders that China’s corn demand now exceeds its domestic output.

Whether or not reserves are adequate is only one part of the whole picture. According to a high-level executive of New Hope Group, the volume of corn consumption increases every year thanks to the development of the livestock industry and its demand for feedstuff.

Another market player is foreign companies. Based on statistics from the China Feed Industry Association, by the end of 2008, there were 153 feed companies registered in Hong Kong, Macao and Taiwan, and another 282 foreign feed companies operating in mainland China. Compared with their Chinese counterparts, foreign feed companies usually possess large-scale investment, are larger in scope, and have high-level technology; most foreign companies are strategic investors.

A source from a Chinese feed company told the EO, foreign feed companies frequently expand their business in China through two methods: one is by being sole-owners and establishing subsidiary companies nationwide, a method preferred by Cargill Inc. and CJ Feed; the other is by conducting mergers or buying shares of other companies, a method used by ABN and Nutreco.

According to reports, foreign feed giants, including Cargill Inc. and CJ Feed, have been exploring investment options in the interior of China for the past few years, including large-scale agricultural investment.

For example, the Chia Tai Group has established over 130 feed companies, accounting for around 20 percent of China’s feed market. Other foreign feed giants, such as the Continental Grain Company, Purina and Cargill Inc., started establishing their position in China’s feed industry long ago.

The main downstream sectors of the corn industry are the cultivation industry and the processing industry, which have also been targeted by foreign countries.

In March 2009, the Chia Tai Group started a project in the Pinggu Distrcit of Beijing to raise three million layer hens. With a total investment of 582 million yuan, they can produce one-fifth of the total egg consumption volume of Beijing. The Chia Tai Group has also signed a contract to invest in the cultivation of 1.5 million layer hens, 15 million chickens and 50,000 pigs in Xinjiang.

The recent increase in meat and egg prices has further promoted the increased demand for corn. Conversely, the price fluctuation of corn will directly influence the prices of the above products. Without a doubt, this trend will continue even after the Spring Festival

China may have harvested a record 180 million metric tons this year, up from 166 million last year, Caijing Business & Finance Review magazine reported on its website, citing an unidentified company executive. Last year, China was a net importer of corn for the first time since 1996. The government has been selling grain from state-owned inventories to cool the rally in domestic prices.

“Rising China-crop forecasts are a surprise because people have been expecting increased import demand,” said Greg Grow, the director of agribusiness for Archer Financial Services Inc. in Chicago. “People are more concerned that China will not buy U.S. corn later this year.”

Corn futures for March delivery fell 9.25 cents, or 1.6 percent, to close at $5.81 a bushel at 1:15 a.m. on the Chicago Board of Trade, the biggest drop since Oct. 21. Before today, the price surged 58 percent since the end of June, touching a two-year high of $6.175 yesterday, after adverse weather reduced the size of the U.S. crop.

Trading volume reached a record 762,387 futures contracts yesterday in Chicago, and open interest was 1.677 million contracts, the most ever, according to CME Group Inc., the owner of the CBOT.

China Crop Forecast

Chinese farmers collected 154.56 million tons this year, up from an estimated 144.374 million last year, according to an estimate by Geneva-based SGS SA for Bloomberg that was based on interviews with growers during the harvest in September and October. Farmers planted more and favorable weather boosted yields, the survey showed. Chinese corn prices have risen 30 percent in the past year.

Yesterday, the U.S. Department of Agriculture said China produced 168 million tons, up from last month’s estimate of 166 million. The USDA expects consumption to expand by 1.9 percent in China to 162 million tons in the year from Oct. 1.

Today’s price drop also was fueled by speculators reducing their bets on further rallies, Grow said. The close below the Nov. 8 low, after reaching a new high earlier in the day, created a “sell” signal for some traders who monitor historical patterns, he said.

“The reversal yesterday on record volume was a sign of at least a near-term peak,” Grow said. “The market needs to consolidate recent gains.”

Corn is the biggest U.S. crop, valued at $48.6 billion in 2009, government figures show, followed by soybeans at $31.8 billion. The U.S. is the world’s largest grower, exporter and consumer of corn.

Soybeans and corn edged higher after losses in the previous session on prospects of better harvest weather next week.

“We have seen the dollar claw back some ground and that is in conjunction with a negative turn in macroeconomic sentiment,” said Toby Hassall, an analyst with Commodity Warrants Australia.

“We had such a significant move in wheat last week, really there wasn’t a huge degree of fundamentals behind that rally in terms of global demand and supply.”

Wheat surged last week to a four-month high, propelled by fund buying and rains that delayed sowing of the US winter wheat crop. Corn and soybean also rallied as wet weather slowed the harvest of this year’s big crops.

But forecasts of favourable weather and a strengthening dollar knocked down the grain markets on Monday, with corn dropping 5 per cent, wheat losing 3.8 per cent and soybeans 1.9 per cent.

The US Agriculture Department said that soybean harvest was 44 per cent complete as of October 25, well below the five-year average for late October of 80 per cent. Corn harvest was 20 per cent complete compared with the five-year average of 58 per cent.

Traders had been expecting the USDA report to show that soybean harvest was 50 to 55 per cent complete and corn harvest was 20 to 25 per cent complete.

“If we do start to see a favourable outlook for harvest than that harvest delay risk premium is going to be wiped out,” said Hassall.

corn harvester

The grain combine harvest is commonly seen in our lives. And it is used for many years.However, corn harvesting is most rely on labour working at present.  With the acience and technology development, the corn harvester come. A corn harvester is a machine used on farms to harvest corn The corn is striped from its stalk and then moves through the header to the intake conveyor belt.

Vermeer Corporation, a leading manufacturer of agricultural equipment, introduces a new wagon-style cob collection system that will revolutionize corn harvesting by enabling farmers to harvest corn and cobs simultaneously.

The cob harvester concept was originally developed by an innovative Midwest farmer who saw a need and acted on it, “much like the founder of Vermeer Corporation, Gary Vermeer, did 60 years ago in 1948.” According to Van Roekel, test harvesting is being conducted throughout 2008 to evaluate performance and efficiency. Vermeer will then communicate product launch plan and availability for the 2009 harvest season.

The corn harvester is towed immediately behind select corn harvesting combines to collect and unload the cobs. While the main idea here is to harvest the cobs for cellulosic ethanol production, the company points out that there are many other uses for corn cobs, such as livestock feed supplement for mixed rations, livestock and pet animal bedding, blending cobs with coal to co-generate electricity, gasification to create several types of energy for industrial processes and other industrial applications including construction materials, abrasives and absorbents.

The average bidding price stood at 1,534 yuan ($224.6) per tonne, a slight increase from last week’s 1,525 yuan per tonne.

Auctions will continue in the neighbouring provinces of Jilin, Inner Mongolia and Liaoning, closing at 14:37 p.m. (0837 GMT).

China started its destocking efforts on July 21, offering 2 million tonnes of corn and 500,000 tonnes of soybean from its state reserves each week.

This week’s state soybean reserve auction will take place on Wednesday, after the first two rounds failed to attract any bids.

Jilin province sold 355,800 tonnes of corn for the second round of state auctions on Tuesday, more than double that of last week, the official National Grain&Oil Trade Centre (NGOTC) said.

Heilongjiang province received bids of 23.69 percent, or 71,100 tonnes, a rise of 17,900 tonnes from the first bidding a week earlier.

Analysts said they expected still tepid buying interest for the second round of corn auctions, citing cheaper spot prices and abundant supplies.

Source: Reuters