China's Corn Policy May Lift Bean Area

PANAMA - Apr 18/16 - SNS -- China's decision to end floor prices for corn could have a material impact on dry edible bean fundamentals over the next couple of years.

Land in dry edible beans has been trending lower since peaking at 1.44 million hectares in 2002 as farmers planted more corn in key production areas in China. Between 2000 and 2004, land in dry edible beans in China averaged 1.29 million hectares. That dropped to 1.02 million between 2005 and 2009 and further to 910,000 between 2010 and 2015.

The policy change was announced after seeding started. The U.S. agricultural attache for the country said most farmers in northeast China had already made planting decisions and cannot easily change plans based on the cancellation of the temporary reserve program. Consequently, corn production is only expected to drop 3% this year to a forecast 218 million MT.

With the change, China has abandoned price support policies for all commodities except wheat and rice. The government says it will retain and 'improve' support price policies for wheat and rice. But the U.S. agricultural attache says "these grains face the same challenges as corn. Mounting surpluses, pressure from cheaper imports, and concerns about lagging productivity and environmental deterioration are forcing China to overhaul the agricultural subsidy model that developed over the past decade."

The policy has also been a "growing financial burden on the government. It also artificially elevated domestic grain prices as much as 30% above the CIF price of imported grain, creating a strong incentive to import rather than purchase domestic grains." Consequently, imports of barley, sorghum and distillers dried grains with solubles (DDGS) should decline significantly as domestic prices for corn drop to more realistic levels.

China is not as important to coarse grains as India is to pulses, but any slowing in international demand partly offsets decreased production of sorghum and barley. The International Grains Council thinks that this, in turn, will prevent any downward adjustment in residual supplies of grains. Barring unexpected production problems in a major importing or exporting country, another year of elevated stocks make it hard for prices to rise.