If sources are correct, USDA's China corn import estimate could be staggeringly low
I remember when Willard Sparks, founder of his own consulting company, and before that the top economist for Cook Grain Company, was so adept at accurately forecasting mega changes in the world grain/soy import environment. He was one of, if not the first, to forecast huge Soviet Union grain imports in the Great American Grain Robbery days. I remember when Willard, who I used to work for, came back from China and told his soybean analyst to double the firm's China soybean import estimate. That bold forecast was chided at the time by many in the trade and among some of Sparks Commodities' clients. It turned out that Willard was actually too low after final imports were tabulated.
Oh, how I wish Willard were alive today. I would take his wise counsel knowing he had the contacts to accurately assess what appears to be a very robust Chinese corn appetite — contacts that today appear to be very lacking at USDA.
USDA last Friday stuck with is prior estimate of 7 million tons of total China corn imports for trade year 2020-21. At the time, U.S. corn sales on the books for China were at 8.8 million tons. USDA's World Ag Outlook Board simply responded that they were waiting to see if China announced any increase in its low-tariff corn TRQ amount, which at this time is 7.2 million tons from all origins. So, is USDA forecasting China will “cancel” existing sales of U.S. corn?
Recall what USDA's Office of the Chief Economist previously said on Feb. 6 in a paper, Agricultural Provisions of the U.S./China Economy and Trade Agreement and USDA Trade Forecasts. The paper noted USTR was not going to make public the specific purchase commitments for individual commodities under the Phase 1 U.S./China trade accord, and therefore those will have "no direct role in USDA's market analysis and forecasts." But USDA also noted at the time, "As actual export sales accrue over time and market conditions evolve, USDA’s trade forecasts will be updated to reflect the timing and composition of China’s purchases of U.S. agricultural products throughout the relevant marketing (or fiscal) year." Well, those purchases have now gone well beyond their forecast level. Is USDA "changing the rules" on how they will incorporate this into their forecasts?
Yes, WASDE is on a marketing year basis and China's TRQs are on a calendar year basis. So, there can be some of it explained that way. However, it does not address the fact that the purchase total is high and getting higher.
And as for China's TRQ of 7.2 million tonnes on corn, the country can come up with ways around that. Prime example is cotton. They have an announced TRQ for 2020 of 800,000 tonnes. They just recently announced an additional 400,000 tonne import quota for cotton for processing. That is one way to get around the over TRQ duties that would apply. And USDA apparently is waiting for that policy signal before adjusting their forecasts. But again, that ignores exactly what they said — they would monitor export sales of commodities.
USDA also previously — when something has happened on the policy side when WASDE was being prepared — came out with an updated WASDE if the policy event would markedly change the outlook for a commodity. If we are now at 9.3 million tonnes of known purchases — with more likely coming in the period for the week ending Sept. 10 — that would suggest that USDA's own metric for adjusting their forecasts is not being met —"as actual export sales accrue over time and market conditions evolve."
U.S. corn sales on the books now total 9.3 million tons, making USDA and many other estimates, including official estimates from China, too low. But history shows China (as did the Soviet Union) deals with secrecy until they have bought what they want. Only then will it become clear that absent another U.S./China trade war, China's total corn imports will easily exceed USDA's paltry 7 MMT forecast.
For several weeks Pro Farmer has consulted with and interviewed our best China watchers and veteran industry analysts from Hong Kong, Singapore, China, Europe and the United States. Those sources now signal total China corn imports for 2020-21 at 20 million to 30 million tons, with most in the 20- to 25-million-ton area.
“It helps to have gray hair to figure this out,” one long-time industry analyst said, noting his current forecast is for 25 million tons.
It appears Ukraine has sold China 4 million tons of corn, with several contacts saying the size of Ukraine's corn crop is lower than USDA currently forecasts, by around 4 million tons. If so, that implies more demand from the United States.
Soon after the U.S./China Phase 1 trade agreement was announced on Jan. 15, “it was all laid out for big corn purchases by China... mainly new crop forward,” one analyst said. “It has played out almost exactly as I was told,” the source added, saying he “can't say more as I have to protect my source.”
The big point many are missing is how can China have nearly a 200-million-ton carryout and $9.00 corn futures and huge imports. “The carryout number is a figment of USDA's and the PRC attaché's imagination,” one analyst stressed. “When will they put out something closer to reality? Probably only after the PRC has completed shipments since USDA's supply and demand sheet can only reflect what is shipped, right?”
Topics to monitor ahead include loading capacity at the U.S. Gulf, or the lack thereof (and some PNW contacts are saying there's substantially more congestion than usual out of those ports), and the spread between CIF and FOB, analysts alert. Others say cash basis should tighten if not go to lofty premium levels once merchandisers get more aggressive in acquiring corn.
The possibly big China corn imports ahead will not likely be a one-off. Why? China is clearly rebuilding its hog herd and will continue to do so. Chinese officials have “instructed” its hog producers to quit using swill (garbage) for what has been up to 50% of feed needs. And, China has to rebuild domestic and strategic corn stocks.
Finally, recall that many private industry analysts were skeptical of the purchase comments under Phase 1, noting that "China doesn't need to import corn." Well, hopefully those analysts are now admitting they put too much faith in publicly available data on what China had — or apparently does not have — in terms of corn supplies and the demand need.
In the ag forecasting industry, it's always about connecting dots. USDA is just looking at one dot: the low-rate TRQ announcement from China. That is like USDA forecasting the score of a football game... after it is over.