Tuesday, June 8, 2010

All eyes on Chinese corn imports

The first US corn shipments to China in 4yrs left the US this week, bound for China. So we will know their fate in about 3 weeks from a Chinese import protocol prospective. This is important because if trade channels are opened, it could promote significant trade in corn between the US/China - aka what has happened in soybeans.

China has strict GMO import protocols and if it decides to enforce them, it could lead to a rejection of these imports – which have been organised by the private sector.

Currently the price of corn in China is about double the world price. Chinese Government authorities have some policy dilemmas to work through. Do they allow imports and depress farm incomes; or reject imports and prevent access to cheaper forms of protein for its growing population.

With natural resource limitations in China (particularly water), many think it will be impossible for China to meet the future demands of its growing population itself. Already it has made a policy determination to sacrifice its soybean industry.

Eventually its Government will decide that it is more important to provide its population with cheap protein sources than fight a losing battle with its farm sector (that is declining in importance anyhow).

So it is a matter of when, not if, they will allow corn imports. It may not be this time around, or the next, but when it eventually does, you can bet it will have widespread implications for global agriculture. Just look at the impact of Chinese soybean imports on the global oilseed industry (the size of this industry has virtually doubled in the past decade).

With global stocks comfortable and not many new crop production issues around at the moment, prices are likely to take their cue from any developments on the China corn front, outside markets (crude oil/equities) and currency movements.

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