Munster Times, IN
10-13-06
Corn's major wild card -- China
Increased speculation that China will either decrease exports or become net corn
importer
BY LYDIA THEW
Medill News Service
The U.S. Dept. of Agriculture's crop report Thursday gave a clear picture of the
nation's corn harvest -- less than expected -- but a major wild card in global
demand and prices is China.
With 1.3 billion people and rapid growth, the effects of China's economy are felt
everywhere. China has been historically a significant exporter of corn, but
growing domestic demand for ethanol and feed has raised speculation that China
will either decrease exports or become a net corn importer. If so, the implications
for U.S. corn prices could be significant.
The USDA report showed China remains a net exporter of corn, projecting the
country will export 158 million bushels in the 2006-07 season. This projection,
though slightly higher than the 150 million bushels estimated in 2005-06, is only
half the 300 million bushels exported in 2004-05.
Analysts agree China's current export situation is tenuous. "If they have any crop
problems, they could easily become an importer, not an exporter," Don Roose,
president of U.S. Commodities Inc. in Des Moines, said. The result would be
increased demand for U.S. corn.
"The U.S. would pick up the supply China normally ships to their customers and
part of Chinese corn imports," Robert Wisner, professor of economics at Iowa
State University, explained.
Countries that currently import Chinese corn, such as South Korea, will look to
the U.S. to fulfill their consumption needs.
The future of China's exports seems defined by uncertainty. China's trade pattern
could "change on a dime," Roose said, recalling that when China shifted to a net
import position in 1995, it caused a spike in the price of U.S. corn.
Bill Nelson, associate vice president and grain and cotton analyst at A.G.
Edwards Inc., added that China's status as a Communist country makes
predicting its next move difficult.
"We're so used to precision in the United States... For a number of reasons,
China's data is much more difficult to be precise about," Nelson said.
Already, with a strong crop this year, China has held back wheat and corn.
Analysts speculate China is holding the corn for ethanol production.
"There are 1,000 new drivers per day driving cars in China," James Bower,
president of Bower Trading Inc., said.
Analysts and traders agreed that the U.S. will need to increase acreage to meet
increased demand created by ethanol production and global import needs.
In the meantime, it appears the Chinese are tactically positioning themselves by
stockpiling soybeans.
"They've been buying beans very aggressively because they're cheap," Roose
said. "The Chinese are very astute traders," Bower said. "I'm trying to find a spot
someplace out ahead where I'm looking to buy soybeans and sell wheat...
normally beans don't stay down in the low fives."