China's corn harvest could rise more than forecast

China's corn production may rise this year more than many commentators have factored in thanks to "favourable" weather but consumption may be greater too, thanks to the disappointing wheat harvest.

China's corn harvest will increase by 6m-10m tonnes provided weather remains benign, the US Grains Council said, following tours of crops in Henan, Shandong and Hebei provinces, which are responsible for some 30% of the domestic harvest.

"China's corn crop looks good," Bryan Lohmar, USGC director in China, said.

While failing to put a figure on the harvest, the increase implies a more comfortable beat of last year's crop, believed to have set a record, than other analysts have factored in.

China's official CNGOIC crop bureau has estimated the harvest rising 5.75m tonnes to 197.5m tonnes, while the US Department of Agriculture foresees the crop increasing by 2.2m tonnes to 195.0m tonnes, estimates matched by the International Grains Council.

China's crop estimates are often the subject of some dispute, and often considered inflated thanks to a subsidy system which rewards regions based on their production.

Orders cancelled

For investors, China's corn crop is a sensitive point thanks to its potential impact on spurring the country's rise from a country self-sufficient to one widely expected to become a structural importer.

The USDA forecasts China's corn imports at 5.0m tonnes in 2011-12, and next season, up from less than 1m tonnes in 2010-11, and sees them topping 18m tonnes in a decade's time, making the country the top buyer, ahead of Japan and Mexico.

However, doubts over China's import demand were stoked last week by data showing that it had cancelled 240,000 tonnes of orders of US corn for 2012-13 delivery.

UBS on Friday revealed that it had cut by 3.5m tonnes, albeit to a relatively high 7.5m tonnes, its forecast for China's 2012-13 imports, citing better prospects for the domestic harvest.

The bank also said that corn currently down for delivery to China was actually being diverted to Japan and South Korea.

'Above-normal rains'

Morgan Stanley two weeks ago - while forecasting a drop to 190.0m tonnes in the Chinese harvest, an estimate based on historic yields acknowledged the potential for a far bigger crop, terming the harvest a "potential bright spot" on a corn output picture blotted by dismal prospects for US output.

"Early-season precipitation has averaged above-normal in the large corn and soybean-growing states of Jilin and Heilongjiang, as well as the Central China Plain," the bank said.

"China's 2012-13 production prospects remain a wild card for US export demand.

Wheat impact

"A Chinese yield as little as 0.09 tonnes per hectare (1.43 bushels per acre, or 2%) higher than trend could afford China the ability to hold 2012-13 imports flat year on year at 5m tonnes, instead of rising to 8m tonnes, as in our base case."

However, the US Grains Council, which promotes US grain exports, highlighted the impact of a disappointing Chinese wheat crop on its corn demand.

"There may be greater demand for corn since the country's winter wheat crop was adversely affected by disease and poor weather," Mr Lohmar said.

"This may result in less wheat being used in place of corn in animal feed, which may create additional demand for corn."

The CNGOIC pegs China's corn demand in 2012-13 at 199.0m tonnes, a rise of 11.0m tonnes, while the USDA puts it at 201.0m tonnes, an increase of 13.0m tonnes.

Source: http://www.agrimoney.com/news/chinas-corn-harvest-could-rise-more-than-forecast--4800.html

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