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Corn, soybean exports: The China effect

Corn, soybean exports: The China effect

With recent rejections of U.S. corn, traders fear that China might start canceling purchases of U.S. soybeans in hopes of finding cheaper product elsewhere.

CHINA is almost always on the minds of grain traders and marketers, but in the waning days of 2013, the world's hungriest importer of soybeans and soybean meal also has been an almost ever-present topic of discussion among the industry's cognoscenti.

At issue are two key questions. On one hand, traders pondered if or when China might start canceling soybean purchases, and on the other, the market twitched every time Chinese authorities rejected corn shipments due to unapproved genetically modified varieties.

Starting with the export issue, the market has been watching with some trepidation to see if China will cancel some of its soybean purchases as a tactic to tamp down high prices.

It happened early in 2013, but there is little reason to fear that it might happen again. After all, China's rapacious appetite for feed ingredients has much to do with the solid fundamentals underpinning current prices in the first place.

Soybean exports, in general, have been a great story in the first months of the 2013-14 marketing year. In the December "World Agricultural Supply & Demand Estimates" (WASDE) report, the U.S. Department of Agriculture increased its forecast of 2013-14 soybean exports by 25 million bu. to a total of 1.475 billion bu.

That forecast is now 155 million bu. larger than last year and only 26 million bu. smaller than the record amount of soybeans exported during the 2010-11 marketing year.

According to University of Illinois economist Darrel Good, the primary reason for the bumper U.S. soybean export forecast — even in the face of record competition from South American supplies — is the strength of demand from China.

"Large soybean imports by China have been the result of the combination of declining production and increasing consumption," he said. "Chinese production totaled an estimated 639 million bu. in 2004 and only 448 million bu. in 2013. China consumed an estimated 1.583 billion bu. of soybeans during the 2004-05 marketing year, and consumption during the current marketing year is forecasted at 2.921 billion bu."

Good said China's consumption of soybean meal this year, meanwhile, is projected to be 126% larger than in 2004-05, while consumption of soybean oil is expected to be 89% larger.

USDA's latest estimates show that China imported fewer than 1 billion bu. of soybeans from all origins as recently as the 2004-05 marketing year, with larger imports each year since then, reaching 2.2 billion bu. during the 2012-13 marketing year.

Chinese imports for the current marketing year are projected to be 2.535 billion bu. China accounted for 63% of total world soybean imports during both the 2011-12 and 2012-13 marketing years. That share is projected to be 66% for the current year.

China imported 864 million bu. of U.S. soybeans during the 2011-12 marketing year and 791 million bu. during the 2012-13 marketing year. Exports to China accounted for 63% and 60% of total U.S. soybean exports in those two years, respectively.

"With 38 weeks left in the 2013-14 marketing year, soybean export sales are already near the total export projection for the year," Good said. "On the surface, it appears that either exports will exceed the USDA projection or that prices will have to increase to slow the pace of consumption. With year-ending stocks of U.S. soybeans already forecasted at a near-pipeline supply of 150 million bu., there is little room for exports to exceed the current projection."

Good said exports can be measurably larger only if the 2013 U.S. crop was larger than the current forecast (a final estimate will be released on Jan. 10, 2014) or if the domestic crush is smaller than projected.

A third alternative, he posited, is that China will cancel some purchases of U.S. soybeans if the South American crop turns out to be as large as expected and prices are subsequently lower than they've currently been. Of course, if the current avian influenza situation in China worsens, that could also reduce the demand for soybean meal destined for its poultry industry.

"Developments over the next few weeks will be critical for the direction of old-crop soybean prices," Good said. "A combination of export sales cancellations, a larger U.S. crop estimate or a larger South American crop estimate would likely trigger a lower price trend. Without such developments, current high prices would likely persist a while longer in order to finish the rationing of old-crop supplies. Protecting the downside price risk appears prudent."


Biotech troubles

Last week, an industry delegation organized and led by the North American Export Grain Assn. (NAEGA) was in China to meet with key government and industry officials following the disruption in U.S. corn shipments attributed to the alleged presence of Syngenta's Agrisure Viptera (MIR 162) biotechnology-enhanced corn.

As of Dec. 20, China had rejected at least a dozen shipments because of the country's delays in approving the trait, which has been approved for use in the U.S. since 2010. In total, 545,000 metric tons of corn were turned away because of the biotech approval flap.

Syngenta began the process of obtaining Chinese approval to export corn containing the MIR 162 trait roughly five years ago and originally expected approval in 2012.

That hasn't happened, and estimates suggest that at least 2% of U.S. corn acreage was likely planted to MIR 162 varieties in 2013.

According to Randy Gordon, president and chief executive officer of the National Grain & Feed Assn. (NGFA), the objectives of the NAEGA delegation's meetings in Beijing, China, included restoring access for U.S. corn exports to China while reducing and mitigating related risks and costs to the U.S. supply chain in both the short and long term.

"There is concern that U.S. farmers have lost access to one of the largest markets for U.S. corn, and there are indications that China has begun testing imports of U.S. distillers grains for the (biotech) trait," Gordon wrote in an update to NGFA members last week. "The delegation will be working with Chinese industry and government officials to seek a remedy to U.S. corn shipments now being detained at Chinese ports of entry, as well as to avoid similar trade disruptions in the future."

China is on track to purchase a record volume of U.S. corn this year, with current commitments topping 5.9 million mt, according to a recent analysis by Bloomberg News.

China was largely irrelevant as a customer for U.S. corn prior to the 2009-10 marketing year but has become a major customer since then (Figure).

Chinese Premier Li Keqiang was scheduled to meet with U.S. Secretary of Commerce Penny Pritzker, U.S. Trade Representative Michael Froman and Agriculture Secretary Tom Vilsack late last week in Beijing as part of the 24th Sino-U.S. Joint Commission on Commerce & Trade.

The U.S. Cabinet officials were expected to broach the corn import approval issue, among other agricultural trade snags between the two countries.

Corn, soybean exports: The China effect

Volume:85 Issue:52

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