Bloomberg News

Wen Visits Argentina as China Seeks Corn-Bargaining Clout

June 22, 2012

The first visit by a Chinese premier in 27 years signals the final step for Argentina to start selling corn to China as the second-biggest consumer of the crop seeks to reduce its reliance on U.S. imports.

Chinese Premier Wen Jiabao will spend three days in Argentina from tomorrow as part of a Latin American tour that will reap several agriculture deals, Vice Foreign Minister Xie Hangsheng said June 18, without elaborating.

For Argentine producers, which include George Soros-backed Adecoagro SA (AGRO:US), Wen’s visit is evidence that initial approvals to export genetically-modified corn will be ratified, said Martin Fraguio, head of growers’ association Maizar. Argentina, the second-largest exporter, would give China an alternative to the U.S. as the Asian nation imports a record 7 million metric tons that at today’s price would be worth about $1.5 billion.

“They will have more clout in negotiating purchases with the U.S.,” Fraguio said by telephone. “It’s not the same negotiating with just one seller than having three or four.”

China became a net corn importer in 2009 as its domestic crop failed to keep up with growth in livestock feed demand and a corn-processing industry that makes everything from starch used in aspirins to high fructose corn syrup used to sweeten Coca Cola. Slowing economic growth probably won’t curb corn imports as rising incomes boost demand for beef and pork.

Record Imports

China’s corn imports in the 2012-2013 marketing year will rise 40 percent from 5 million metric tons the previous year, according to the U.S. Department of Agriculture. The most-active contract yesterday settled at $5.50 a bushel on the Chicago Board of Trade.

Argentina and Laos were listed as approved corn suppliers to China, the Beijing-based quality watchdog General Administration of Quality Supervision, Inspection and Quarantine said on April 28. China also set corn import standards for the Brazilian government, Brazil’s agriculture ministry said in a June 5 e-mailed statement.

Argentina still needs approval of a traceability system through which importers such as Cargill Inc. and Bunge Ltd. (BG:US) can prove corn comes from seeds permitted by Chinese authorities.

Argentine Vice President Amado Boudou plans to meet Wen on June 25, a press official at his office said. An official at the Chinese Embassy in Buenos Aires said Wen’s agenda can’t be unveiled before his arrival in the country. Argentina’s Foreign Ministry doesn’t have an agenda for Wen’s visit.

The South American country will send 16 million tons overseas in 2012-2013, up 23 percent from the previous year, while Ukraine will ship 14 million tons, USDA data show. In 2007, Ukraine exported 1.03 million tons.

Growing Demand

China’s economy probably will expand 8.2 percent this year, according to the International Monetary Fund, compared with 9.2 percent in 2009, when the global GDP contracted.

“Seven or 8 percent growth is still great so people are going to eat higher-quality foods, higher caloric intake, more meat,” Steve Kahler, who helps manage $79 million in assets as chief operating officer at Santa Fe, New Mexico-based Teucrium Trading LLC, said in an interview in Chicago. “From the world perspective, you have growing production capabilities but we also have a growing demand base.”

China probably will produce 195 million tons in the 2012- 2013 marketing year from 192.8 million tons in the previous year, the USDA said. That’s up from 166 million tons in 2008- 2009.

Disaster Risk

China aims to be self-sufficient in grains to shield itself from the risk of natural disasters in other growing regions, Agriculture Minister Han Changfu wrote in a May 26 article published on the website of the People’s Daily. Han will accompany Wen on the Buenos Aires trip.

South America is one of the few regions of the world that can boost supplies to China, Fraguio said. The so-called Black Sea region that includes Russia and Ukraine is another region where production and exports may rise, he said.

Wen will be eager to mend differences over a trade row between Argentina and China in 2010 when the Asian nation banned Argentine soybean imports, said Matt Ferchen, resident scholar at the Carnegie-Tsinghua Center for Global Policy in Beijing.

“There is concern among some in China that Argentina in particular, but also other countries in South America, are and will increasingly turn to protectionist policies,” Ferchen wrote in an e-mailed response.

Corn exports from the U.S. in the marketing year that ends on Aug. 31 will account for the lowest amount of global trade in 41 years, USDA data show. The U.S. will ship 42 million tons of the grain to overseas buyers, accounting for 43 percent of global exports, the least since 1971, according to the USDA.

“The market will rely upon more marginal production regions where yields tend to be more volatile and increases in prices we are likely to see,” said Nick Higgins, an analyst at Rabobank International in London. “The U.S. will likely recapture some market share next year however the days of 50 percent-plus of the world’s corn exports from the U.S. are over.”

To contact the reporter on this story: Matt Craze in Santiago at mcraze@bloomberg.net

To contact the editor responsible for this story: James Attwood at jattwood3@bloomberg.net


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Companies Mentioned

  • AGRO
    (Adecoagro SA)
    • $8.19 USD
    • -0.21
    • -2.56%
  • BG
    (Bunge Ltd)
    • $84.67 USD
    • 0.71
    • 0.84%
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