Does China Really Have 63% Of World Corn Inventories? Probably Not.
The USDA says China holds a massive amount of corn in storage, but its estimates are based upon historical number jockeying by the Chinese. Sky-high domestic Chinese corn prices, huge sales of state corn reserves, and record corn imports by the Asian giant indicate the USDA’s Chinese and global corn inventory estimates are wrong.
Markets are never wrong, but analysts can be, even the good people at the USDA. Global corn market prices, most especially those in China and the US, are signalling that China doesn’t have all the corn the USDA has said it has. Global corn markets are taking notice.
Consider the following:
Chinese corn futures prices have risen over 46% in 2020 even though China has sold over 2.2 billion bushels of corn out of its state reserves since the beginning of May.
U.S. corn futures prices have risen over 34% since August, the week after it was announced that the Chinese had made the largest ever corn purchase for export from the U.S.
Chinese corn imports are already at a new record high level. Grain experts say China has already committed to buying more than twice its official Tariff Rate Quota import allotment of 7.2 million metric tons (283 million bushels) of corn; most believe the TRQ will be raised to somewhere between 20 and 30 million metric tons. 30 million metric tons of corn is just under 1.2 billion bushels, which is only a little more than half the amount of corn China has sold this year out of state reserves.
The Chinese are reeling from a host of food production related issues that have affected corn and other crop production this season; the USDA projects China will produce 19 million metric tons (just under 750,000 bushels) less corn than it will use this year.
A brief history and what to watch for:
The USDA has a history of adjusting its China related grain numbers in the November World Agricultural Supply and Demand Estimates report, and these adjustments have been made using pieces of information provided by China. In November of 2015, the USDA added over 23 million metric tons to China’s corn inventories based upon Chinese reports of its corn purchases and sales over the prior few years. The USDA then assumed that because China ended corn price supports in September of 2015, China probably had more corn than had been previously estimated.
In November of 2018 the USDA took the release of a report by China’s National Bureau of Statistics at face value and included a massive revision of China’s corn inventories once again, this time adding a stunning 148 million metric tons of corn to Chinese (and global) corn inventories. These revisions, based entirely on unverifiable data provided by the Chinese, are now being challenged by some private analysts.
The rise in corn market prices that began in China and now rippling across global corn markets seems to confirm that the 2018 data provided by China was less than accurate. That casts more than considerable doubt on the USDA’s current estimates of global corn inventories.
Markets are efficient, and right now global corn market prices may be a more reliable indicator of the true state of global corn inventories than current estimates provided by the venerable USDA.
At some point, perhaps in the upcoming November 2020 WASDE report, the USDA will have to eventually yield to the reality that China’s numbers shouldn’t have been trusted. Market prices are likely reflecting the raw reality that there is less corn in the world than China, and the USDA, led everyone to believe.