Pest attack to have little effect on corn production

Despite a recent pest attack, China's corn output will not drop sharply and the country can maintain a sufficient supply without increasing imports from the international market, an agriculture expert said.

The comments came a day after the China National Grain and Oils Information Center, a government think tank, put its estimate for this year's corn yield at 197 million metric tons, 0.5 million tons less than its forecast a month ago. And China will probably import 3 million tons, it said.

The slight lowering of the corn yield estimate is a result of the worst armyworm outbreak in 10 years, which hit Jilin and Hebei provinces and the Inner Mongolia autonomous region, important corn producing areas.

The armyworm outbreak had hit 3.33 million hectares, or 10 percent of China's corn planting area, by Tuesday, the Ministry of Agriculture said on its website. The ministry said it has begun a 60-day campaign to curb the spread of the disease.

But Li Guoxiang, a researcher with the Rural Development Institute of the Chinese Academy of Social Sciences, said the adjustment of the think tank's estimate is "symbolic" rather than an actual projection.

"The center's original estimate of 197.5 million tons was rather conservative. If the pest attack had not occurred, the general estimate within the industry would be 200 million tons," Li said.

"Of course, the effect of the pest attack could not possibly be limited to 0.5 million tons. But I'm also confident that this year's corn output will remain above 180 million tons," Li said.

An output of 180 million tons is considered as a red line within the industry.

China International Capital Corp, the country's biggest investment bank, estimated losses of 1.5 million tons from pests and about 0.4 million tons from flooding, which are minor compared with China's overall corn output.

In 2011, China's corn output reached 192 million tons. The rise in corn prices last year encouraged Chinese farmers to expand this year's planting area by 2 percent. This increase could offset the reduction in per unit production, said Li.

China, the world's second-biggest corn grower, used to be a net corn exporter. But as corn demand surged due to increased livestock raising, the nation became a net importer of corn in 2010.

Now China is the world's second-largest corn consumer and its growing appetite has pushed up global corn prices.

China's corn imports hit 2.4 million tons in the first half of this year, a 65-fold increase over the same period last year. This large purchase strengthened China's corn inventories and reduced the nation's reliance on imports, according to Li.

But compared to the pest attack, prices pose greater risks to China's corn industry, according to Jean-Yves Chow, a senior industry analyst with Rabobank NA, a global food and agriculture financial service provider.

"Rabobank does not believe that at a national level the pest attacks this year are higher than in years past. China's corn balance sheet was already tight as the steady price rise suggested," Chow said.

Amid the worst drought in half a century, the US Department of Agriculture last Friday cut its estimate for this year's corn crop by 17 percent to 274 million tons, a five-year low. The United States is the world's largest corn planter and supplies half of the world's corn.

As a result, the cost, insurance and freight price of US corn in the East Asia market has risen 40 percent since mid-June to between $385 and $390 per ton. Other corn producers such as Ukraine have also suffered from declining output due to severe weather.

But Chow said even in these circumstances, China's corn price is still expensive on the global scale, being 30 percent higher that the US price even during the drought.

"Thus any decline in supply will widen the potential shortage gap and China will need to increase imports or develop further corn alternatives," said Chow.

But Li said that, unlike soybeans, China's corn imports do not result from rigid demand, which means they will respond to a high international corn price with reduced purchases.

"China's corn imports surged in the first half of this year because the price at that time was at a record low," Li said. "If the price in the international market remains high, we can reduce imports without threatening supplies."

But both Chow and Li agree that, in the face of tight supply, China will attach a priority to using corn for feed, which means ethanol and corn derivatives such as starch may receive fewer incentives.

This April, the Chinese government reduced corn ethanol subsidies from 1,276 yuan ($200) per ton to 500 yuan as it worked to use less corn for that purpose, saving it for animal feed.

Contact the writer at zhengyangpeng@chinadaily.com.cn