(Bloomberg) – The record corn crop China was counting on to sustain its huge pork habit is coming up short.
Production that was supposed to reach an all-time high this season instead will drop 5.8 percent, the most in 15 years, after a summer drought and late-season rains stunted plants and delayed harvests, according to SGS SA, a researcher hired by Bloomberg to survey farmers in the main growing regions during September and October. As recently as Oct. 9, the U.S. Department of Agriculture forecast a 4.3 percent gain in Chinese output.
At a time when global stockpiles are dropping for the first time in five years, a smaller Chinese harvest may boost domestic prices already inflated by subsidized government purchases and restrictions on cheaper imports. While China has expanded inventories in recent years, it grows and consumes more corn than any nation except the U.S., and two thirds of its domestic output is used to feed hogs because the country consumes more than half the world’s pork.
“The dry spell snuck up quickly this year,” and drained moisture from an area where few farmers have irrigation, said David Streit, chief operating officer at Bethesda, Maryland-based Commodity Weather Group LLC. “The dryness shaved some yield potential.”
More Planting
Output had been expected to reach another record, mostly because Chinese farmers expanded planting this year. In the seven major growing areas, which accounted for 69 percent of the country’s output last year, only one province reduced acreage, according to SGS, which dispatched five teams of researchers across the corn-belt to gather crop data and interview 325 farmers during the harvest months.
But for the second straight year, drought stunted plant growth and damaged stalks and corn kernels, especially in the northeastern areas near North Korea and in Inner Mongolia to the west. At the end of July, rainfall in Liaoning, the fourth-largest growing province, was 10 percent of normal and the lowest since 1951, according to SGS. The dry spell compounded stress on crops after some farmers delayed planting because of a spring freeze, the researcher said. Some also postponed the harvest because of late-season rains.
Some plants were half the normal height in northeast provinces like Heilongjiang, Jilin and Liaoning, said Mark Oulton, the SGS global agriculture market research manager in Shanghai. Yield in the main provinces fell 6.1 percent, he said.
The sampling size of 325 farmers was determined to obtain a 95 percent confidence level, with a margin of error at 5.66 percent, Oulton said. Last year, SGS surveyed 307 farmers and predicted a 3.6 percent drop in output, compared with the USDA’s final estimate of a 1.3 percent decline.
The drought was more damaging this year than last, with 74 percent of farmers in the survey citing dry conditions for yield losses, SGS reported. Wind damage was cited by 18 percent. Jilin, Liaoning and Inner Mongolia saw the most significant worsening of weather, the researcher said. Farmers across the corn belt also reported more insects, with 22 percent rating the damage as severe, up from 6 percent last year, while 13 percent reporting severe disease damage, up from 4 percent in 2014.
Heilongjiang, the top growing region at 15 percent of output last year, saw yields drop almost 12 percent, mostly because of wind damage, even after planting increased by 0.6 percent, SGS said. Farmers in Jilin, the No. 2 province, reported yield losses at 15 percent mostly because of water shortages and increased insect infestations.
Catastrophe Avoided
“The situation would’ve been a lot worse if farmers hadn’t been switching to new and better varieties of hybrid corn,” which are more resistant to drought and pests, Oulton said. “Twenty years ago, this would have been a catastrophe.”
SGS is forecasting the biggest crop decline since 2000, when a drought sent production plunging 17 percent, according to data from China’s National Bureau of Statistics, which estimated last year’s harvest at 215.65 million tons. The USDA, which will update its global crop forecasts Nov. 10, said last month that Chinese output would rise this year to 225 million tons.
Big Inventories
A smaller harvest may not make much of a dent in domestic supplies or global markets.
Over the past decade, the Chinese government acquired surplus grain at above-market prices to protect income for farmers, most of which have less than a few acres of land. That’s left the biggest inventories since 2001. The USDA last month estimated stockpiles in China will jump to 90.6 million metric tons before the 2016 harvest, up 11 percent from 2015 and the fifth straight annual gain. In 2011, reserves were at 49.4 million.
Because the government limits imports and has kept domestic prices artificially high through its purchases of surplus grain, “China corn is isolated from the world market,” said Roy Huckabay, executive vice president at Linn & Associates in Chicago. The country’s “production is not a factor in U.S. trade,” he said.
