China’s corn ending inventories have declined by over 20% since the state stockpiling program was abolished in 2016, found the analysts.
Rabobank expects inventories to further drop in the coming years, potentially to critically low levels.
Options to boost China's corn supply
Market-driven corn price increases will incentivize acreage rebound, but can only be part of the solution, said the market specialists. Policy reforms, on domestic production and feed grain imports, are required within three years, noted the Dutch bank’s report.
To examine the near-term outlook for Chinese corn, Rabobank conducted a scenario analysis for the years through 2021/22. Lief Chiang, analyst, grains and oilseeds, Rabobank, looked at three scenarios: ‘high-production’, ‘high-import’ and ‘combined'.
“Only the 'combined' scenario – in which the increase in domestic production and imports matched the forecast consumption growth – allows China’s corn market to rebalance in the forecast period. However, this scenario also requires policy reforms.”
In the other scenarios – solely relying on either 'high production' or 'high import' – supply will not keep up with consumption, resulting in inventory depletion to critically low levels, or consumption will be forced to drop considerably as corn prices continue to soar, he said.
Policy reforms required
Policy reforms required under the ‘combined’ option include the hiking of domestic corn production through cash subsidies or crop insurance to further encourage corn planting, the government restarting a state stocking program in producing regions, or it speeding up the commercialization of GM corn hybrids, according to the report.
A required production boost of almost 100m tons by 2021 vs 2017 seems unlikely though even through these efforts, says Rabobank, which means China would still be required to import corn and alternative grains or cut demand.
To boost low stocks, the analysts said China could import more alternative feed grains such as sorghum and DDGS as well as corn, terminate related anti-dumping investigations and lift retaliatory tariffs. To import more corn, Rabobank suggests China could reform the quota system, through either lifting the import quota limits and/or lowering of the out-of-quota tariffs.
Having access to imported grains will be good for feed mills, reducing input costs and helping them to stay competitive, say the analysts.
A potential commercialization of GMO corn might help improve yield and also raise domestic production, added the analysts. However, considering the complexities of the regulatory approval process, such an option seems unlikely to materialize in the near term, they concluded.