Bloomberg News

Chinese Use of Corn to Top USDA Estimates by 7.2%, FCStone Says

October 21, 2011

Oct. 21 (Bloomberg) -- Chinese demand for corn may top a U.S. Department of Agriculture estimate by 7.2 percent as it is increasingly used to feed hogs, said Troy Lust, a West Des Moines, Iowa-based analyst at Intl. FCStone Inc.

China may use 200 million metric tons of the grain in the 2011-2012 marketing year, up from a USDA forecast of 186.5 million tons, Lust said at a conference in London today. Rising incomes will boost demand for pork so producers will need more grain to feed animals, he said. The country will produce a record 182 million tons of corn, USDA data show.

“The cost of employment has skyrocketed since we started dealing with China 15 years ago,” Lust said. “Labor costs are rising. China’s per capita GDP and wages should continue to grow. They like to spend and they like to eat better. They enjoy the pork, poultry and fish.”

Corn prices plunged 23 percent in September on speculation demand for the grain and other raw materials used to make food would decline as the debt crisis in the European Union worsened.

Incomes in China have room for “explosive” growth, Lust said. Corn consumption is expected to jump 6 percent this year and has surged 52 percent since the 2001-02 marketing year, according to the USDA. Stockpiles will fall 5.1 percent this year and are 40 percent lower than they were in 2001-02, USDA data show.

“There’s lots of room for income growth in the short run,” Lust said. “The fundamental fact is that there are more people, more money, they’re eating better and the question is what does that do to the demand base for food.”

As demand for the grain has gained and prices jumped 17 percent in the past year, corn users including ethanol makers and livestock feeders have become accustomed to higher prices, Lust said.

Vulnerable to Shortages

“The market has learned to consume $6 corn,” he said, adding that in China it’s the going price.

China may have used about 75 percent of its corn reserves in an effort to cool rising prices for the grain last year, Lust said. That leaves them vulnerable to supply shortages if adverse weather curbs production globally, he said.

Yields have declined in the U.S. during the past two years, USDA data show.

“If Mother Nature throws a curveball, prices will have to go to the level that it rations demand,” Lust said.

Ethanol makers, animal feeder and industrial users of the grain will probably stop buying before China does because people need food more than they need fuel, he said.

“We’re going to see a slowdown in demand in other areas of the world market before we see a slowdown in Asia,” Lust said. “As long as personal GDP and wages continue to grow at a faster rate than overall inflation, the demographics remain in place” for higher food prices in China, he said.

--Editors: Sharon Lindores, John Deane

To contact the reporter responsible for this story: Tony C. Dreibus in London at tdreibus@bloomberg.net

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net


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