UN cuts China corn production forecast by 2%

Sina US Stocks News, Beijing time 27th, FT reports: The United Nations Food and Agriculture Organization (FAO) is preparing to cut its forecast for China's corn production in the current crop year by 2%, due to severe drought in northern China.

The agency had previously expected that China's corn production in 2015-16 would reach 226 million tonnes, up 5% year on year, and next week it will announce that the expected total production has fallen to 221 million tonnes.

This downward revision will ease some of the pressure on Beijing, because agricultural subsidies have caused China's corn reserves to continue swelling.

However, the UN Food and Agriculture Organization said that the decline in production has not affected inventories, because the decline in feed and industrial use means that corn consumption has also decreased.

In fact, the organization expects that by the end of the current crop year, China's corn reserves will rise 5%, to 103 million tonnes.

Abdolreza Abbassian, senior economist at the UN Food and Agriculture Organization, said that the continuously rising level of corn inventories has become “a major policy issue…… for Beijing. They know this is not a lasting solution, but the situation will not change immediately.”

Analysts pointed out that the Chinese government's purchases of grain and cotton are the root cause of its excess inventories. Government purchase prices encouraged domestic production, but at the same time stimulated a large increase in imports, because food and feed producers turned to cheaper overseas raw materials.

Ample production in major corn-growing countries means that the current benchmark corn price is 3.5 to 3.6 US dollars per bushel, the lowest level seen in five years, in contrast to the record high of nearly 8.5 US dollars per bushel set in 2012. As China's feed producers and livestock raisers turn to cheaper feed, high corn prices in China have also raised international prices for other grains such as sorghum and barley.

China cut the government purchase price of corn in the current crop year, hoping to reduce reserves.

The Chinese government also issued guidance this month, requiring that by 2020 the sown area in some marginal production areas be reduced by more than 3.3 million hectares, a decline of 9% from the current level.

The International Grains Council said that harvests in marginal areas are usually lower than in major production areas.

Nathan Kemp, an analyst at the International Grains Council, said: “The decline in total annual production may be limited to around 13 million tonnes, but this may be partly offset by continued increases in harvests in other parts of the country.”