Bloomberg News

Floods to Drought Seen Curbing China’s Corn Harvest: Commodities

November 06, 2013

Corn in Hubei Province

A farmer spreads out corn to dry in Hutouyan, Hubei province, China. Photographer: Nelson Ching/Bloomberg

China’s corn harvest is poised to decline for the first time in four years after flooding in its biggest-producing province and drought in its fifth largest cut yields, easing a global glut as the U.S. reaps a record crop.

Output by the world’s second-biggest corn grower fell 3.2 percent to 199.1 million metric tons, according to SGS SA (SGSN), which carried out 302 interviews in the seven largest growing areas during the harvest in September and October for Bloomberg. The state-owned China National Grain & Oils Information Center expects a 4.6 percent advance to 215 million tons, and a unit of the U.S. Department of Agriculture projects a 2.1 percent gain to 210 million tons.

Smaller harvests and benchmark prices that slumped 50 percent from the record set in 2012 signal Chinese buyers will import the maximum 7.2 million tons allowed by annual government quotas. Futures have tumbled to a three-year low, curbing income for farmers from Brazil to Ukraine while lowering costs for Tyson Foods Inc. (TSN:US) and other poultry producers.

“There is obviously speculation on whether some of the current projections for Chinese production are incorrect,” said Luke Mathews, a commodity strategist at Commonwealth Bank of Australia (CBA) in Sydney. “If the market is overestimating the size of the Chinese corn crop, and therefore imports are more than the market previously expected, we will see upward momentum in global grain prices.”

Import Orders

U.S. corn for shipment to China in December already costs 18 percent less than local grain, according to Shanghai JC Intelligence Co., a research company. Feed mills bought at least 1.3 million tons of U.S. supply in October and began placing orders for next year, according to Shanghai JC, which is forecasting a 4.6 percent gain in the Chinese crop.

Futures plunged 40 percent to $4.2125 a bushel on the Chicago Board of Trade this year, the biggest drop among 24 commodities tracked by the Standard & Poor’s GSCI Spot Index (SPGSCI), which slid 5.7 percent. Corn on China’s Dalian Commodity Exchange retreated 3.7 percent to 2,344 yuan a ton. The MSCI All-Country World Index of equities advanced 17 percent, and the Bloomberg U.S. Treasury Bond Index lost 2.4 percent.

Chinese farmers planted 35.3 million hectares (87 million acres) of corn, 0.7 percent more than in 2012, Geneva-based SGS estimated. That compares with 39.4 million hectares in the U.S. SGS used five teams of two surveyors to conduct face-to-face interviews with farmers in central-north and northeast China. Its estimated margin of error is 5.7 percent.

Severe Drought

The harvest in Heilongjiang province in China’s northeast, the biggest growing region, contracted 5.7 percent because of flooding while water damage in Shandong cut output by 22 percent, according to SGS. A severe mid-season drought in Henan reduced its crop by almost 15 percent, SGS said. Production in Jilin rose 13 percent while in Liaoning it climbed 9.2 percent.

Excessive rainfall was cited as the cause of bad weather in 52 percent of cases, from 19 percent a year earlier, SGS said. Reports of severe insect damage increased by 10 percentage points to 23 percent of the total, SGS found. Reports of crops severely damaged by disease rose to 6 percent from 4 percent.

“It’s been an extremely variable year,” said Mark Oulton, the market research director for SGS. “When you have two top producing provinces suffering from serious problems, it has a big drag effect.”

The average yield across the survey area was 5.65 tons a hectare, 3.8 percent less than last year’s official government data, according to SGS. The average yield for this year’s U.S. crop was forecast at 9.75 tons by the USDA in September. More than half of Chinese corn farms are holdings of one hectare or less and tended by the landowner, according to SGS.

Net Importer

Even a smaller-than-expected Chinese harvest won’t be enough to erase the global surplus that the International Grains Council in London says will swell stockpiles by 26 million tons in the 2013-14 crop year. China has been a net importer of corn every year since 2010, data from its customs agency shows.

Hedge funds and other large speculators have bet on lower corn prices in Chicago since July, U.S. Commodity Futures Trading Commission data show. They held a record net-short position of 159,242 futures and options in the week ending Oct. 22, according to the data, which was disrupted by the U.S. government shutdown.

U.S. farmers will reap a record 14.03 billion bushels (356 million tons) this year, 30 percent more than in 2012, according to the average of estimates from 36 analysts and trading firms compiled by Bloomberg. Output is rebounding from the country’s most severe drought since the 1930s.

Global Production

Tyson, the largest U.S. meat processor, reported earnings and revenue that beat analysts’ expectations for the three months ended June 29 as demand strengthened and feed costs fell. The Springdale, Arkansas-based company produced an average of 41.4 million chickens, 132,000 cattle and 403,000 hogs a week last year, data on its website show.

The International Grains Council increased its forecast for global production by 5 million tons to 948 million tons on Oct. 31 and said stockpiles by the end of the season would reach a 13-year high of 152 million tons.

Forecasting and comparing output estimates for China is complicated by the lack of a baseline figure agreed on by government and private researchers. SGS used the China National Grain & Oils Information Center’s 2012-2013 crop estimate of 205.6 million tons and an area of 35.03 million hectares as its benchmark for comparisons.

China’s per-capita disposable income jumped almost fourfold since 2000, expanding meat consumption and demand for feed for livestock. The nation will produce about 711 million hogs this year, almost double the amount two decades ago, USDA data show.

Li Xuejuan, a 50-year-old farmer from Weiqiao county in Shandong, who sells some of her crop to local feed mills, said output slumped 30 percent this harvest.

“It’s been a very difficult year for us -- heavy rain, strong winds, flooding,” Li said in an interview in September, squashing an insect between her fingers as she inspected corncobs drying on the road. “And too many worms.”

To contact Bloomberg News staff for this story: William Bi in Beijing at wbi@bloomberg.net

To contact the editor responsible for this story: Brett Miller at bmiller30@bloomberg.net


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