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By TOM ORLIK And CHUIN-WEI YAP |
In 2001, China opened up its soybean industry to imports. Within three years, it moved from near-self sufficiency to being the world's largest importer. Now China is starting to look overseas for corn.
Rising incomes are whetting China's appetite for a better diet, meaning rising demand for corn. In the short term, increasing domestic production will be hard. Indeed, China imported 1.6 million tons of corn in 2010, up 18-fold from 2009. The U.S. Grains Council forecasts China will import four million to five million tons this year, equivalent to 5% of the global corn trade at a time of low stocks.
Yet corn bulls may be too optimistic. Corn is at a record $7.80 a bushel in Chicago, in part because its use to make ethanol in the U.S. links it to high oil prices. Global prices, therefore, are 23% higher than in China. That price difference discourages imports. They are unlikely to rise significantly until that gap closes which could happen if, say, oil prices cool off or South American harvests are bigger than expected.
Politics is another wild card. Beijing has been reluctant to allow commercialization of genetically modified seeds. Yet their adoption could help China increase its corn yield from 5.3 tons per hectare towards the 9.6 tons enjoyed in the U.S. If Beijing backs GM foods, and the Chinese public can be persuaded to eat them, they could also restrain imports.
High international prices in the short term and options to raise yields in the long term mean corn isn't yet in the same category as soy beans. An increase in imports isn't in doubt. Its extent and timing are.