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FINANCIAL CHRONICLE™ » DAILY CHRONICLE™ » Focus on China

Focus on China

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1Focus on China Empty Focus on China Tue Apr 14, 2015 11:47 am

VALUEPICK

VALUEPICK
Expert
Expert
http://www.world-grain.com/Departments/Country%20Focus/Country%20Focus%20Home/Focus%20on%20China%202015.aspx?cck=1

China’s grain production is at or near record levels as government policy aims to encourage production to feed the world’s largest population.

The International Grains Council (IGC) forecasts a rise in China’s total grain production to 349.3 million tonnes in 2014-15, compared with 348.2 million the year before. It includes 126.2 million tonnes of wheat, up from 121.9 million tonnes the year before.

China’s maize production is forecast to fall to 215.7 million tonnes in 2014-15, from 218.5 million the year before. Its forecast barley production is put at 1.6 million tonnes, down from 1.7 million the year before.

China’s sorghum crop is forecast at 2.6 million tonnes in 2014-15, down from 2.9 million the year before. Rye is forecast at an unchanged 600,000 tonnes.

China’s total grain imports in 2014-15 are forecast at a total of 16 million tonnes, down from 19.3 million the year before.

Wheat imports for 2014-15 are predicted at 1.5 million tonnes, down from 6.7 million the year before. Wheat exports in 2014-15 are put at 400,000 tonnes, up from 300,000.

Maize imports are put at 2.5 million tonnes, down from 5 million the year before, with exports at an unchanged 100,000 tonnes. Barley imports are put at 4.5 million tonnes, up from 4.3 million.

The IGC forecasts China’s rice crop in 2014-15 at 144.5 million tonnes, up from 142.5 million tonnes the year before. Forecast rice imports are 3.9 million tonnes, up from 3.7 million tonnes the previous year. China is also forecast to export an unchanged 400,000 tonnes of rice.

It puts China’s soybean crop in 2014-15 at 11.8 million tonnes, down from 12 million the previous year. China is the biggest soybean importer listed, importing 74.5 million tonnes in 2014-15, up from 70.8 million tonnes the previous year.

The country’s rapeseed crop in 2014-15 is forecast unchanged at 14.5 million tonnes.

“China’s wheat, rice, and corn production are forecast to maintain record or near-record levels, supported by high government-set purchase prices,” the USDA attaché said in an annual report on the grains sector.

“Higher government price support has encouraged increased wheat planting,” an update from the attaché on the sector said. “Future acreage gains are expected to be limited by rising production costs, including land, labor and irrigation, which offset higher government price support.”

“The government pays a set price for average quality wheat, irrespective of protein level, under its price support program,” the attaché’s annual report said. “As a result, wheat offered to flour mills from state reserves has inconsistent quality characteristics.”

While overall flour consumption is stable, demand for specialty flours for high-value bakery products is rising, it said. “Flour mills prefer to import wheat for specialty flours, as sourcing domestic wheat with the necessary consistent qualities is difficult. However, wheat imports are limited by TRQs, of which only 10% are allocated to the private sector.”

Since 2004, domestic wheat production has been purchased and stored by state grain companies under the government’s minimum purchase price program, the report said. “The government provides state grain companies preferential loans to purchase the wheat and subsidizes storage costs. The State Administration of Grain (SAG) organizes regular wheat auctions throughout the marketing year as necessary to meet demand or rotate stocks.”

“Corn production in MY2014-15 is forecast at 214 million tonnes, down 3 million tonnes from the previous estimate due to summer drought damage in major corn producing provinces such as Henan, Inner Mongolia and Liaoning,” the attaché said in the update report. “In regions not affected by drought, most producing provinces reported higher-than-average quality.”

“Total MY 2014-15 corn consumption is lowered 6 million tonnes to 214 million tonnes as high corn prices have hurt feed and industrial demand,” the report said.

The attaché said that feed mills are importing other feed ingredients in order to reduce purchases of expensive domestic corn.

China’s slow biotechnology approval process has restricted imports from the United States and may impact Brazil and Argentina, the attaché said. “Feed mills are responding to high domestic corn prices by importing Ukrainian corn, Australian feed barley, U.S. sorghum and Thai cassava.”

The attaché forecast that ending stocks in 2014-15 would rise to a record 79.7 million tonnes on weaker consumption. “The government is expected to continue putting pressure on corn imports as it looks for ways to draw down large and expensive domestic stocks,” the report said. “At the same time, the government is unlikely to allow corn prices to fall enough to allow the market to clear, sustaining strong import demand for alternative feed ingredients.”

In a report on the oilseeds sector, the attaché explained that China’s soybean production is limited by its concentration on wheat. “Urbanization, rising incomes, and modernization of the feed and livestock sectors have fostered oilseed consumption, forecast at 137 million tonnes in MY15-16,” the report said. “China’s soybean imports are estimated to set records of 73 million tonnes in MY14-15 and forecast at 77.5 million tonnes in MY 15-16. Due to a combination of policy constraints and stagnating yields, soy production in China is forecast to decline to 11.7 million tonnes in MY15-16. Soybeans are the only major agricultural crop in which China is dependent on imports for the Lion’s share of its supply.”

BIOTECH APPROVAL DELAYS

The Chinese government has prioritized the development of a domestic biotechnology industry and is investing heavily in basic research, the attaché said in a report on the issue.

“Commercialization of biotech varieties has been limited to date due to concerns over public opinion and the strength of the domestic seed industry,” it said.

“The biosafety certificates issued to Chinese developed biotech rice and corn expired in August 2014 without MOA completing the final step needed for commercialization. Delays in import approvals have created large-scale trade disruptions in corn and corn products and impacted other crops such as alfalfa. Despite these challenges, China is expected to remain a significant importer of biotech products, notably soybeans. The United States has continued to press China to adhere to a science-based policy on biotechnology approvals.”

RISING ETHANOL PRODUCTION

China’s 2014 fuel ethanol production is forecast to reach 2.8 billion liters, up 6% from the previous year due to fuel consumption growth in provinces with a blend mandate, the attaché said in a further specialized report.

“2014 biodiesel production is forecast at 1.13 billion liters, an increase of only five percent from last year, as producers react to lower profits,” it said. “Fuel ethanol production is lagging behind the government’s 12th five-year plan due to shortage of non-grain feed stocks and policies that limit grain-based ethanol production.

“China imported a 10,500-tonne shipment of ethanol in early 2014, reportedly as part of a trial study by a state oil company. Future imports, while economically viable, will require changes to national energy policies and regulations.”

MOST MILLS SMALL

According to a report published by Rabobank, there are more than 40,000 flour millers in China. “However, most mills are extremely small,” it said. “In fact, over 30,000 of these mills have less than 50 tonnes of physical capacity per day and operate less than 90 days out of the year and another 5,000 have less than 200 tonnes capacity per day.

“The sector effectively represents the village milling model of the past. Much of this excess capacity still exists in North China. South China, specifically Guangdong province, has to a large extent made the transition to a modern industrial platform and is a key supplier to the rest of the national food processing industry.”

From 2005 to 2010, annual flour milling capacity effectively more than doubled, from 80 million tonnes to 170 million tonnes (though some industry estimates are even higher), Rabobank said.

Alltech reported in January 2015 that “China once again won the title of leading feed producer in Alltech’s annual Global Feed Tonnage Survey with 182.69 million tonnes manufactured throughout the country’s 9,500 feed mills. However, this is the second year the nation has reported a decline in production.”

“Some analysts contribute this downturn to a slow hog market and bird flu that suppressed consumer demand,” it said.

2Focus on China Empty Re: Focus on China Wed Apr 15, 2015 2:28 pm

Senior Citizen

Senior Citizen
Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
The sad truth is that Food manufacturers are now sourcing their requirements (at least partly) from China and that is not a good sign.

There are environmental concerns and more serious issue of compliance to the strict quality standards required for the industry.

There have been many instances where the companies supplying produce had to close down.

3Focus on China Empty Re: Focus on China Thu Apr 16, 2015 6:34 am

Vptilak


Manager - Equity Analytics
Manager - Equity Analytics
China is doing everything well. Huge challenge to west. well done China.

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