Friday, May 18, 2018

China Quits Sorghum Anti-Dumping Investigation

China's Ministry of Commerce announced today that its antidumping and anti-subsidy investigation of sorghum imported from the United States would be terminated because duties would not be in the public interest. Provisional duties of 179% imposed last month will be terminated and deposits collected will be returned.

The Ministry's "Announcement on termination of anti-dumping and anti-subsidy investigation of sorghum imported from United States" [关于终止对原产于美国的进口高粱反倾销反补贴调查的公告] released May 18, 2018 said the investigation found that duties would raise costs for consumers and impose even more pain on the beleaguered swine industry which is suffering severe losses due to a 30-percent decline in hog prices since the beginning of the year:
"In the process of the investigation, the investigating organizations received many reactions from downstream users who told the investigation that downstream livestock farming industry would experience higher costs. The anti-dumping and anti-subsidy measures would result in higher costs of living for the broad population of consumers and would not be in the public interest. The investigating organizations found that pork prices had recently been on a sustained declining trend, and many farmers are facing difficulties. In this situation, the anti-dumping and anti-subsidy measures are not in the public interest." [unofficial translation by dim sums blog]

Thursday, May 17, 2018

Corn Auctions Cost Billions

China is disgorging massive quantities of surplus corn from its reserves, but sales are costing the Chinese treasury billions of dollars.

Today China sold 1.4 million metric tons of corn from its "temporary reserve" at an average price of 1,401 yuan ($220.79) per metric ton. Most of that corn had been purchased during 2014 at support prices of 2220 yuan in Heilongjiang Province and 2260 yuan in Inner Mongolia and Liaoning Province. Thus, the sale recovered only about 62 percent of the price paid for the corn when in was purchased about 3 1/2 years ago. Additionally, authorities paid about 5% interest on loans used to buy the corn and about 86 yuan ($13.50) per ton per year to store the corn.

The total cost of corn auctioned can be estimated by applying these accounting calculations to auction results reported on www.grainmarket.com.cn.

Estimated financial losses from China's auctions of corn from "temporary reserve", 2017-18
Item May-Sept 2017 April-May 2018

Million metric tons
Grain sold at auction 48.8 25.7

Billion dollars
Revenue from auction sales 10.4 5.9
Purchase cost -17.2 -8.9
Cost of interest and storage -4.7 -3.4
Total cost of grain -21.9 -12.3
Assumes exchange rate of 6.35 RMB/US$; interest rate 5%; storage cost of 86 yuan/ton/year. Purchase cost based on temporary reserve prices.

The April-May auctions of corn have generated $5.9 billion (using an exchange rate of 6.35 yuan/dollar), but the original purchase cost of the corn was $8.9 billion. So auction sales, on average, recovered 64 percent of the original cost of the corn--not nearly enough to pay back the loans used to purchase the corn. Interest and storage cost for the corn added $3.4 billion, presumably paid for by subsidies from the Ministry of Finance. Thus, the corn cost $12.3 billion, but only $5.9 billion was generated from auction sales. The net cost to the Chinese government and/or banks of the corn sold is therefore $6.4 billion, or $249 per metric ton.

The 48.8 mmt auctioned during May-September 2017 (for which we could find auction results) generated $10.4 billion and cost $21.9 billion, a net cost of $11.5 billion for 48.8 mmt, or $236 per metric ton.

These costs do not include costs for unsold corn still held in inventories. 

Officials are eager to sell corn since interest and storage costs go up and grain deteriorates the longer the grain is held.

Sunday, May 13, 2018

China Adjusts "Go Global" Agriculture Program

China's foreign investment and cooperation in agriculture must recognize the "deep changes in the domestic and foreign environment," "seize opportunities" and "take the initiative" according to exhortations issued at a Ministry of Agriculture and Rural Affairs meeting of officials responsible for international cooperation held last week.

Officials were instructed to guide industries to shift investment to "belt and road" countries and the Indochina region of Southeast Asia. Other edicts were to:
  • establish a complete agricultural trade policy system, 
  • actively participate in negotiations on international rules for trade and investment. 
  • Speed up nurture of a set of major international grain traders and agricultural enterprise conglomerates, 
  • encourage enterprises to optimize their industry and market layout worldwide.
The meeting chaired by Minister Han Changfu carefully studied Xi Jinping's thoughts on "rural revitalization" and "one belt, one road" and propagated the themes of building an "open agricultural economy" and international competitiveness in agriculture. According to the Ministry, better coordination of investment and developing a complete policy system improving policy support for overseas investment and technical assistance to continually improve agriculture’s international competitiveness and global influence will "add luster to the modernization of agriculture and rural areas."

There is nothing really new in last week's meeting. All the components have been included in China's recent under-the-radar program to make the country's overseas agricultural investments more effective.

A November 2016 Ministry of Agriculture circular "Program for Construction of 'Two Zones' for External Agricultural Cooperation" laid out an experimental program for trying out various support and development strategies for foreign investors in agriculture to carry out instructions in the State Council's "No. 1 Documents" to improve international cooperation in agriculture with "one belt, one road" countries and foster big grain traders and agribusiness conglomerates. Participating companies can be both state-owned and private, and non-agricultural companies are also encouraged.

In a two-year pilot program the strategy will throw different ideas at the wall and see which one sticks. "Two zones" refers to foreign "demonstration zones" and "experimental zones." Demonstration zones include various types of technology and industry parks and free trade zones with an emphasis on multiple Chinese businesses working together to form industry clusters and/or chains of industry: seeds, machinery, farming, marketing, processing and sales. "Experimental zones" are zones in China that will experiment with various policies to provide support to overseas investors in agriculture, including information databases, subsidized loans, insurance, training of companies and personnel. Companies could get help raising funds in capital markets, loan guarantees, priority in attaining national-level "dragon head enterprise" status, help with inspection and quarantine procedures. The document called for state-trading enterprises to use their tariff rate quotas to import products of Chinese companies investing in agriculture abroad.

Last July, the first ten demonstration and experimental zones were announced, and the top 100 overseas agricultural investment companies were announced in February 2018. Lists are shown below.

The first 10 demonstration zones included five in Africa, two in central Asia, two in southeast Asia, and a fishing industry zone in Fiji. The Tanzanian zone happens to be in a gold-mining region. Each zone is to be managed by a relatively anonymous provincial company:
First set of Chinese foreign agriculture development zones, announced July 31, 2017
Zone name Company responsible
Tajikstan-China Agricultural Cooperation Demonstration Park Xinjiang Lihua Cotton Co.
Mozambique-China Agricultural Technology Demonstration Center Hubei Province Lianfeng Overseas Agriculture Development Ltd Co
Jiangsu-Shinyanga Agricultural and Industrial Modern Industrial Park (Tanzania) Jiangsu Haiqi Technology Engineering Ltd Co
Uganda-China Agricultural Cooperation Industry Park Sichuan Youhao Hengyuan Agriculture Development Ltd Co
Star of Asia Agricultural Industry Cooperation Zone (Kyrgyzstan) Henan Guiyou Shiye Group Ltd Co
Sudan-China Agricultural Cooperation Open Zone Shandong International Economic Technology Cooperation Co
Laos-China Modern Agricultural Technology Demonstration Park Shenzhen Huada Genetic Sci-tech Ltd Co
Cambodia-China Tropical Ecological Agricultural Cooperation Demonstraton Zone Hainan Dingyi Luzhou Ecological Agriculture Ltd Co
Fiji-China Fishery Industry Comprehensive Industry Park Shandong Lidao Ocean Technology Ltd Co
Zambia Agricultural Product Processing Cooperation Zone Qingdao Ruichang Sci-Tech Industry Ltd Co

Experimental zones include a mix of port cities, fishing industry centers, inland border crossings, a China-Singapore food trade zone, and a tropical agriculture institute, most managed by city or county governments.
China Open Agriculture Experimental Zones, announced July 31, 2017
Zone name Organizing Unit
Qionghai Open Agriculture Cooperation Experimental Zone Hainan Qionghai City Government
Tropical Agriculture Open Cooperation Experimental Zone China Institute for Tropical Agriculture 
Lianyungang Open Agriculture Cooperation Experimental Zone Jiangsu Lianyungang City Government
Jilin Zhongxin Food Zone Open Agriculture Cooperation Experimental Zone Jilin (China-Singapore) Food Zone Management Commission
Jeminay Open Agriculture Cooperation Experimental Zone Xinjiang AR, Jeminay County Government
Raoping Open Agriculture Cooperation Experimental Zone Guangdong Province, Raoping County Government
Weifang Open Agriculture Cooperation Experimental Zone Shandong Weifang City Government
Dongning Open Agriculture Cooperation Experimental Zone Heilongjiang Dongning City Government
Rongcheng Open Agriculture Cooperation Experimental Zone Shandong Rongcheng City Government
Binhai New District Open Agriculture Cooperation Experimental Zone Tianjin Binhai District Government

A partial list of the top 100 companies designated for foreign investment in agriculture includes the top state-owned grain-trader COFCO, the top agribusiness conglomerate Guangming, many companies from the system of state farms, state-owned chemical companies, feed, seed, agricultural machinery, rubber, and fishery companies.
Sample list of 31 of the top 100 Chinese companies for foreign investment in agriculture, February 2018
COFCO Group
Guangming Foods 
Hainan Natural Rubber Industry Group
New Hope Liuhe Corporation
Shandong Ruyi Sci-Tech Group
Sinochem International
Lovol Corp
ChemChina Agricultural Chemicals
China National Fisheries Corp
Dakang International Food and Agriculture
Guangdong Guangken Rubber Group
Inner Mongolia Yili Group
Guangdong Haid Group
Tongwei Corp
Shanghai Fisheries Group
Yunnan State Farms Rubber Investment
Rugao Shuang Ma Chemical 
Shandong Meijia Group
YTO Group 
China State Farms Group
Xinjiang Production and Construction Corps Engineering
Tianjin Food Group
Shandong Sinotex
Beijing Nutrichem 
Yuan Longping Agri-Tech
Jilin Province Jinda Foreign Agriculture Investment
China-Africa Agriculture Investment Co
Jiangsu Red Flag Seed Co
Beidahuang Rice Group International Rice (Beijing)
Chongqing Grain Group Haining Fudi Investment 
Pu'er City Conghe Rubber

Saturday, May 5, 2018

China Soybean Planting "Emergency" Declared

Two Chinese provinces issued orders to increase soybean planting this spring with promises of a big subsidy. It is unclear whether the "emergency" is a potential shrinkage of soybean imports from the United States or low soybean prices that threaten to derail China's multi-year effort to shift land from corn to soybeans.

Jilin Province issued a "circular on 2018 soybean planting task"《关于下达2018年全省大豆种植面积任务的通知》to township governments ordering local officials to expand soybean planting, and warning them that they must raise their "awareness and political standing" to decisively complete the task. Local officials were told to email their soybean plan to provincial officials by May 2. On April 28, Changchun municipality issued an "emergency notice on implementing the 2018 soybean planting task《关于迅速落实2018年大豆种植面积任务的紧急通知》which emphasized that "expanding soybean area is an important political task in agricultural production." Heilongjiang Province also issued an "emergency" circular to expand soybean planting this year.

The Jilin circular issued to Shuangliao District officials (see below) promises subsidies of 350 yuan per mu ($813 per hectare or nearly $344 per acre). A meeting convened by the vice mayor of Heihe City in Heilongjiang promised a 200-yuan/mu soybean producer subsidy and a 150-yuan subsidy for switching from corn to soybeans--the same as the 350-yuan subsidy /mu in Jilin. (Heihe's corn subsidy is 100 yuan/mu.)

Market prices for soybeans in Heilongjiang now range from 3.3 to 3.6 yuan/kg. With a yield of 140 kg/mu, the 350-yuan subsidy would add 70-to-75 percent to the 462-to-504 yuan/mu gross income per mu from growing soybeans. The subsidy is also roughly equal to the average rent for land in northeastern China.

"circular on 2018 soybean planting task" issued to
local governments in Jilin Province's Shuangliao municipality.
Academy of Social Sciences Agricultural Economist Li Guoxiang told NBD News that the provincial soybean-planting campaigns are a continuation of the 5-year "supply side structural adjustment" program to shift land from corn to alternative crops as well as an effort to reduce reliance on soybean imports.

The big subsidies could have been prompted by the late realization that market conditions have severely eroded the profitability of soybeans for Chinese farmers: domestic soybean prices are down and corn prices are up. The monthly Ministry of Agriculture commodity market report released April 18 revealed that soybean prices in Heilongjiang Province are down 9.2 percent from a year ago, while corn prices in the province are up 12-to-18 percent from a year ago. National Bureau of Statistics farm producer price indexes show a similar pattern of rising corn prices and falling soybean prices from 2017 to 2018. These price movements seem likely to prompt farmers to switch from soybeans to corn, thus bringing the "supply side structural adjustment" program to a screeching halt in its third year.
Changchun emergency notice says expanding
soybean planting is an important political task.
Meeting in Heihe City promised subsidies of 200 yuan and 150 yuan for growing soybeans.

Wednesday, May 2, 2018

Xinjiang Leads China Wheat Policy Reform

China's Xinjiang Autonomous Region says it will replace a support price for wheat with market-determined prices supplemented by a bigger direct payment to farmers, according to Grain and Oils News. A grain official said the policy adjustment is intended to address the province's surplus of low-quality wheat which has overwhelmed storage facilities.

Since 2004, Xinjiang has set a support price for wheat and given farmers subsidy of 0.3 yuan for each kilogram of wheat they sold to state-owned enterprises. Since 2009, the region has set an annual plan to purchase 1.5 mmt of wheat for a "temporary reserve." An official said that paying farmers based purely on the weight of grain sold encouraged them to produce maximum quantities without regard to quality. The policy was set to ensure that the region -- in China's northwest far removed from the main wheat-producing regions -- could meet its food needs with a small surplus. Instead, an official told Grain and Oils News, farmers produced a bloated surplus and there is no room in storage facilities. Farmers became overly reliant on selling to the government, and undermined the marketing system, officials explained.

This year Xinjiang will begin "supply side structural reform" for wheat. Officials say the wheat price for farmers will be set by the market, with prices rewarding farmers for high quality wheat demanded by the market. "Diverse players" will enter the market, and Xinjiang will no longer carry out the 1.5-mmt "temporary reserve" purchase plan.

The government will still have a significant role, however. An annual wheat production plan will be drawn up for each county. Pilot programs will promote selenium-enriched wheat, organic wheat, and strong gluten wheat and brands in various regions. Minimum and maximum inventory guidelines will be issued to warehouses and mills. Banks will be instructed to set aside funds to finance grain purchases by marketing enterprises, and interest rates will be subsidized.

Farmers will get more generous subsidies. The "cultivated land fertility protection" subsidy will be increased by 30 yuan per mu for winter wheat and 15 yuan for spring wheat to ensure that grain is profitable enough to attract farmers, Grain and Oils News said. Information about this subsidy is elusive. Funds are issued to counties which set the amount of the subsidy.

News items say farmers who grow wheat, corn for silage, alfalfa, field corn and unspecified specialty crops are eligible for the land fertility protection subsidy. (Cotton, sugar beet producers are not eligible--they have their own subsidies.) In one region, a calculation indicates the land fertility subsidy was 56 yuan/mu in 2017 and would therefore be 86 yuan/mu this year. In Wusu prefecture, a document specifies a subsidy of 100 yuan/mu for producers of wheat, corn for silage, alfalfa, and 18 yuan/mu for field corn, tomatoes for processing, sunflowers, and melons. The same subsidies were announced for Bayingol Meng Prefecture in January and for Yili Kazakh Prefecture in 2016.

In principle, the land fertility subsidy is intended to pay for measures to restore soil fertility, but no conditions for receiving the subsidies are specified.

A reform of wheat policy announced in Xinjiang may indicate China's new direction for food grain policy. The minimum procurement price policy for the core wheat regions of Hebei, Henan, Shandong, Jiangsu, Anhui, and Hubei has always been distinct from Xinjiang's wheat policy. A Ministry of Agriculture report on supply side structural reform for wheat issued in 2017 also blamed the price support program for prompting farmers to produce excess supplies of moderate-gluten wheat because it rewards them for test weight and low proportion of imperfect kernels but not for gluten or protein content. A Chinese Academy of Agricultural Sciences study of wheat samples from 2006 to 2015 found that the proportion of wheat meeting standards for strong gluten declined by half over the period and the proportion meeting weak-gluten standards remained minimal over the study period.

A similar strategy of direct payments in exchange for reducing support prices has been promised for rice this year, but no concrete measures have been announced.

Friday, April 27, 2018

Rice Province Plans to Reduce Crop

China's biggest rice-producing province has announced plans to cut production of the crop as the country copes with a rice glut. This is a reversal of now-forgotten policies aimed at expanding rice production in the same province six years ago.

According to State media, Hunan Province's communist party leadership announced an objective of reducing Hunan's area planted in rice by 3 million mu--equal to 200,000 hectares--during 2018. The province's "number one document" aims to reduce production of double-cropped rice and shift the land into high value specialty crops.

Hunan authorities plan to choose 10 counties for development of vegetable supply bases and another 10 counties will be targeted for development of specialty fruits and tea. A provincial communist party official explained that Hunan plans to focus on building up seven major agricultural industries by 2020: rapeseed, bamboo, grain processing, livestock and poultry, tea, vegetables, and cotton-flax-silk.

The move is part of a supply-side structural adjustment reform to reduce production of low-quality rice as China grapples with a rice surplus. The provincial communist party official said Hunan must shift its cropping structure away from uniform rice production toward a crop mix with higher quality crops based on regional comparative advantage to follow consumer demand, optimize returns for farmers, and build a Hunan provincial brand.

The cut in rice planting is a reversal of rhetoric sounded by Hunan officials ten years ago when they worried that rice producers were leaving their land idle, switching from two crops of rice per year to one, or converting the land to high-value crops. By 2011, officials had rolled out initiatives to revive production of two crops per year by giving out cash awards, ordering village leaders to prevent idling of land, and intervening to transfer idle land to farmers who would grow rice on it. In 2012, a subsidy program was launched to start specialized early rice seedling farms, rice-transplanting companies, and to mechanize transplanting.

According to Hunan statistics, area double-cropped in rice went up from 2010 to 2014, while single-cropped area fell. These were the years when officials were campaigning to revive production of the early rice crop, which is notorious for poor quality and is grown primarily to meet government production targets. The early crop posted the biggest increase in production: an increase of 92,000 hectares (suggesting numbers may have been padded) during 2010-14. The late rice crop rose 52,000 hectares, approximately equal to the 54,000-hectare decline in land where a single rice crop was planted per year.

Changes in Hunan province rice-planting
Double-cropped rice
Years
Early crop
Late crop
Single-crop rice
1000 hectares
2010-14
92
52
-54
2014-16
-32.5
-35.2
32.2
2016 area
1,421
1,459
1,206
Source: Hunan statistical yearbooks.

By 2014, it was evident that the campaign to boost early rice production had resulted in excess supplies of rice. The government was the main customer for the early rice crop, in particular. Officials reversed course, began discouraging early rice production, and cut the support price for the crop. From 2014 to 2016, the early rice crop fell by 32,500 hectares and the late crop fell by 35,200 hectares in Hunan, while planting of single-crop rice rose by 32,200 hectares.

Hunan still plants mostly double-cropped rice. In 2016, the province reported planting over 1.4 million hectares each in early and late rice, and 1.2 million hectares in single-season rice. (No data on 2017 rice production in the largest rice-producing province is available today -- two months after the completion of the rice marketing season -- despite China's enthusiasm for "big data" and "market information.")

Presumably, Hunan's 200,000-hectare reduction will reduce the 2.9-million-ha combined area planted in early and late rice crops. Thus, double-cropped area is presumably targeted for about 1.35 million hectares.

Why are Hunan officials announcing this objective of reducing double-cropped rice production in late April, about two months after farmers typically plant the early rice crop?

If they were wrong about early rice six years ago, why should we expect communist officials to correctly guide farmers this time on what they should plant?

Tuesday, April 17, 2018

Soybean Tariffs to Boost State-Owned Companies?

China's big state-owned soybean importers will not be affected much by proposed 25-percent tariffs on U.S. soybeans, according to a Chinese Business Journal article posted on numerous web sites yesterday.

The article appears to be a propaganda piece portraying the possible tariffs as an opportunity to boost the role of state-owned enterprises in China's soybean industry and freeze out multinational grain traders. The lack of named sources and the journalist's stringing together of propaganda memes suggests the article is propaganda masquerading as news for investors.

The reporter notes that three of the top soybean importers are state-owned companies--COFCO, Beidahuang, and Sinograin.

The China Business Journal reporter, writing under an apparent pseudonym, quotes an unnamed employee of an unnamed state-owned enterprise who said that officials from unnamed "government departments" have been asking Chinese companies about their soybean import volume, how much they import from the United States, and what their plans are for purchasing this year.

"The tariffs will have an extremely small effect on us large companies," the state-owned company employee told the reporter, "Because U.S. soybeans are only one-third of our purchases."

"The effect of the soybean tariffs is not extremely large," the article repeated several times in various forms throughout the article.

According to the reporter, the U.S. futures price dropped 5.25 percent after China's proposed 25-percent tariff on U.S. soybeans was announced. "But our company is not affected much, because we hedged our soybean purchases," the employee explained.

An investment analyst told the reporter that Brazilian soybeans cannot replace U.S. soybeans if China imposes the tariffs. Brazilian soybean prices are rising as the market anticipates a rush of Chinese buyers to South America who will compete for a limited supply of beans. Brazil already exports more than half of its soybeans, and about three-fourths of those exports already go to China.

The article segues to another propaganda talking point: Brazilian and Chinese State-owned companies can link up to trade soybeans directly, bypassing "ABCD" multinational trading companies. The investment analyst says he went to Brazil where he found that Brazilian companies were eager to learn about matters like Chinese customs clearance, inspection and quarantine so they could export soybeans directly to China without selling through an ABCD intermediary.

A representative of a Brazilian state-owned company said he had come to China to make deals with Chinese state-owned companies for direct trade in soybeans.

The Brazilian said, "We have a small order from a Chinese state-owned company to test the water."

The reporter then moves on to the old complaint that imported soybeans are destroying the Chinese soybean processing industry by depressing prices.

The reporter learned from a multinational grain trading company that the market for domestic Chinese soybeans is very limited. In particular, he said there was virtually no market for soybean meal produced from domestic soybeans because the price is too high.

The article gloms on to the "quality" mantra circulated by officials this year to claim that the "low end" oil and meal products from crushing imported soybeans have little momentum from consumer demand as it shifts to high-end products. Premium products of domestic non-GMO soybeans have better prospects, the journalist suggests.

In fact, the opposite is true. Imported soybean volume grows faster than expected year after year. The Chinese government had to step in to buy extra domestic soybeans produced in northeast China this year because there was not enough demand.