Exclusive: China eyes more corn imports as shipments surge, set to become top buyer
By Naveen Thukral and Hallie Gu
SINGAPORE / BEIJING (Reuters) - China's government is currently discussing permits for millions of tons of additional corn imports over the next year, three industry sources told Reuters.
A round of new import orders from China would make it the world's leading importer of corn for the first time, and likely push up global prices for corn and other grains. This would exacerbate food inflation caused by disruptions in global supply chains due to the coronavirus pandemic.
Food security has become a global issue during the pandemic, exacerbated in China by a disease that has ravaged the pig herd and made pork supplies scarce for the past two years. China is the world's largest consumer of pork and the second largest consumer of corn.
Beijing previously had massive reserves, but has almost depleted them at auctions, leading grain buyers to buy alternatives like rice and wheat, and to boost corn imports. Domestic corn prices hit record highs this month due to congestion following a typhoon, drought and pest.
GRAPHIC: Corn prices between USA and China since 2005 - https://fingfx.thomsonreuters.com/gfx/ce/bdwvkjrmwpm/ChinaUSCornprice.png
Two China-based sources and a Singapore-based trader familiar with the import discussions said Beijing is considering giving more lower tariff quotas to buyers to alleviate the domestic shortage. These quotas encourage imports by exempting shipments from most of the 65% tariffs that would otherwise be levied by Chinese customs.
"(The government) will review the supply and demand situation in the market and may later set additional quotas that could flow into state reserves," said one of the sources familiar with the government plan.
Those with knowledge of the business declined to be identified as they are not authorized to speak to the media.
China's state planner, the National Development and Reform Commission (NDRC), which sets import quotas, did not immediately respond to faxes asking for comments on future additional imports. COFCO, China's largest grain merchant and state warehouse keeper Sinograin, did not respond to faxed requests for comment.
GRAPHIC: Corn Supply and Demand in China - https://fingfx.thomsonreuters.com/gfx/ce/nmovaykgzva/ChinaCornStats.png
China's rise to become the top importer on its way from a longstanding policy of promoting domestic corn self-sufficiency will transform the global grain trade and encourage corn growers around the world to plant more to meet Chinese demand.
After China began importing soy - another crop used for animal feed - in the 1990s, it quickly became a top buyer. Farmers in Argentina, Brazil and the United States responded by switching to soybean crops.
"China could transform the world corn balance sheet by becoming a major importer in the next decade," said Terry Reilly, senior analyst at Chicago Brokerage Futures International.
QUOTAS WELL UNDER DEMAND
Beijing routinely spends 7.2 million tons of low-tariff quotas on corn imports and covers most of its annual needs of 280 million tons from native crops. China has never used its full annual quota.
Analysts have estimated that more than four times this quota or 30 million tons will be required in the 2020-2021 crop year from October to September.
The Beijing Department of Agriculture attache said in a report released earlier this month that there was talk in China of state-owned companies drafting a report to the NDRC recommending that an additional 20 million tons be allocated in low-tariff quotas.
Even before further additional quotas are awarded, Chinese importers have ordered more than double the annual allowance. According to a Singapore-based international trade source and two other people with knowledge of the business, they have booked around 12 million tons of corn imports from the US and around 5 million tons from other countries including Ukraine for the crop year.
That would put China right behind Mexico, the world's largest importer. The U.S. Department of Agriculture (USDA) estimates that Mexico is expected to import 18.3 million tons.
Of the corn sold to China, 3.7 million tons were exported, according to the USDA. China may cancel corn orders that have not yet been shipped.
Beijing has already approved a special low tariff quota of 5 million tons for top grain dealer COFCO, which, according to one of the sources familiar with the details of the trade, was mainly used to book US shipments.
Under the terms of that additional allowance, COFCO would import the corn at the lower tariff, but its profits will be capped at 30 yuan ($ 4.49) per ton and any additional wind blow will go to the state, the person said.
"I think this is done from two perspectives," said the person. "For one thing, we need corn. For another, we have this deal with the United States that we have to fulfill."
China pledged to buy billions in additional agricultural imports from the United States under an agreement signed in January to end a trade war between the two countries.
It's below the $ 36.5 billion target for 2020, but has increased imports this year to address shortages of corn, pork, and soy.
According to a report by the US trade agency on Friday, China had bought $ 23.6 billion in agricultural products so far this year.
GRAPHIC: Global Grain Balances since 1990 - https://fingfx.thomsonreuters.com/gfx/ce/dgkvljwokvb/GlobalGrainBalance.png
(Additional reporting by Karl Plume in CHICAGO; editing by Simon Webb, Shivani Singh and Richard Chang)
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