September 1 marked the start of a new crop marketing year and China is already on the books as the largest buyer of U.S. corn and sorghum -- a trend that could continue through the 2020/2021 marketing year based on supply and demand factors.
“Many people think China’s recent corn purchases are driven by the U.S.-China Phase One agreement and could be easily cancelled due to politics,” says Bryan Lohmar, U.S. Grains Council (USGC) director for China. “But China did not just dial 1-800-BUY-CORN. Importers are expanding their trading capabilities in the United States and partnering with key river freight and port loading facilities. These are signs China will continue to procure grain from the United States well beyond recent purchases.”
China has purchased 8.733 million metric tons (348.8 million bushels) of U.S. corn and 1.365 million tons (53.74 million bushels) of U.S. sorghum for the 2020/2021 marketing year, as of Aug. 27, 2020. These sales add to 2.312 million tons (91.03 million bushels) of U.S. corn and 3.932 million tons (154.83 million bushels) of U.S. sorghum purchased in the prior marketing year, much of which has shipped in the last few months.
The U.S. and China governments signed the Phase One trade deal in mid-January. After the terms took effect one month later, importers were able to obtain exclusions for corn and other agricultural products from retaliatory tariffs imposed on agricultural products in July 2018.
These exclusions made U.S. agricultural products more competitive in the Chinese market. Corn sales to China, however, are still restricted by a 7.2 million-ton (283 million-bushel) tariff rate quota (TRQ). The TRQ allocates 40 percent of corn imports to private end-users (2.88 million tons or 113.38 million bushels). The rest -- 4.32 million tons or 170.07 million bushels - is reserved for state-owned enterprises.
“While there are rumors that China’s primary state-owned trading company was given additional import quota above the 7.2 million-ton TRQ for corn this year, it is not entirely clear that is the case,” Lohmar says. “The quota is allocated according to calendar year (January to December) while U.S. sales are reported by marketing year (September to August), causing disconnects about allocation of the TRQ.
“Private TRQ holders this year and past years have filled their quotas, indicating strong demand and price competitiveness for imported feed grains in the China market. We don’t know how much of the 2020/2021 marketing year purchases will be shipped before December, meaning they would be applied to the 2020 TRQ. It is likely, however, that there will be shipments before the end of the year, indicating that additional corn TRQ was allocated this year.”
Despite these restrictions, supply and demand factors within China point to continued purchasing of corn and sorghum. For example, China built up large reserves of domestically grown corn from the 2012 to 2015 crop years to help support prices during that time period. China has sold corn from these reserves each summer since 2016, meaning they currently have less locally grown corn to supply to the domestic market.
“With large portions of the corn temporary reserves sold, it seems there is additional demand for imports,” Lohmar says. “Those imports will likely be corn because global exportable supplies of alternative grains are limited. But we expect U.S. sorghum to also fill these demand needs.”
Further supporting continued purchases are Chinese domestic corn prices, which have rallied much of the year despite robust sales of corn from the reserves over the summer. In northeast China, corn prices rose nearly 30 percent between December and mid-August and more than 20 percent in south China over the same period, opening a wide margin for imported corn. These prices have softened some in recent weeks under pressure from corn from reserve sales moving into the market and large imports on the books, but still well above levels seen last fall.
“China has been a major importer of feed grains over the last several years,” Lohmar says. “Corn imports have been restricted by the TRQ, meaning these imports have been sorghum, barley and other feeds that can be used in lieu of corn. But with dwindling supplies in the temporary reserves and high domestic prices, supply and demand factors indicate more imports of corn and sorghum will likely occur.”