Oilseeds and Products Update

An Expert's View about Cereals, Leguminous Crops, Oil Seeds in China

Posted on: 3 Jun 2012

A slight drop in planting area as farmers substitute more profitable alternative crops continues to dampen production estimates for MY 12/13 compared to last year.

THIS REPORT CONTAINS ASSESSMENTS OF COMMODITY AND TRADE ISSUES MADE BY USDA STAFF AND NOT NECESSARILY STATEMENTS OF OFFICIAL U.S. GOVERNMENT POLICY Required Report - public distribution Date: 5/28/2012 GAIN Report Number: CH12037 China - Peoples Republic of Oilseeds and Products Update Approved By: M Melinda Meador Prepared By: M Melinda Meador and WU Xinping Report Highlights: A slight drop in planting area as farmers substitute more profitable alternative crops continues to dampen production estimates for MY 12/13 compared to last year. Total MY12/13 oilseed production is forecast at 55 million metric tons (MMT) from a planted area of 25.32 million hectares (MHa), both down 2.7 percent and 2 percent from MY11/12, respectively. Expectations are for cottonseed to fall by one MMT, soybeans to contract by 500,000MT, and rapeseed acreage, though down, to produce higher yields in response to favorable weather, thereby maintaining its production levels. MY12/13 peanut production is expected to remain stable at 16 MMT. Feed demands continue to drive soybean imports, which could reach 60MMT this year, and the lifting of phyto import restrictions and approval of new crushing plants is spurring a surge in rapeseed imports, primarily from Australia and Canada. Total Oilseeds A slight drop in planting area as farmers substitute more profitable alternative crops continues to dampen production estimates for MY 12/13 compared to last year. Total MY12/13 oilseed production is forecast at 55 million metric tons (MMT) from a planted area of 25.32 million hectares (MHa), both down 2.7 percent and 2 percent from MY11/12, respectively. Expectations are for cottonseed to fall by one MMT, soybeans to contract by 500,000MT, and rapeseed acreage, though down, to produce higher yields in response to favorable weather, thereby maintaining its production levels. MY12/13 peanut production is expected to remain stable at 16 MMT. Feed demands continue to drive soybean imports, which could reach 60MMT this year, and the lifting of phyto import restrictions and approval of new crushing plants is spurring a surge in rapeseed imports, primarily from Australia and Canada. MY12/13 Soybeans production expected to fall to 13 MMT Soybean production in MY12/13 is forecast at 13 MMT, down from the previous year’s estimated 13.5 MMT. Low soybean profits in major production areas continue to influence farmers toward alternative crops, a trend expected to carry into MY12/13. According to China’s National Grain and Oils Information Center (CNGOIC) May report, MY12/13 soybean planted area is expected to fall to 7.15 MHa from the previous year’s 7.65 MHa, down 6.5 percent, with production forecast to fall to 13 MMT, down more than 7 percent over the previous year. Heilongjiang Agriculture Commission’s May report shows soybeans lost acreage to profit-leading crops. MY12/13 corn and rice planted area reached 95 million Mu (MMu; or 6.33 MHa) and 53 MMu (3.53MHa), respectively, both up 6 MMu (400,000 Ha) and 1.3 MMu (87,000 Ha), while soybean area declined to 40 MMu (2.67 MHa), down 10 MMu (667,000 Ha) over the previous year. A soybean market consultant based in Heilongjiang expects an even more dramatic shift, forecasting MY12/13 soybean planted area will plummet to 35.5 MMu (2.37 MHa), significantly lower than the 52.2 MMu (3.48 MHa) in the previous year, while corn and rice area will increase 17 percent and 8 percent, respectively over the previous year. More specifically by region, the planted area is expected to decline significantly (down by 40 percent) in “temperature zones 2 and 3” where the climate conditions make switching to corn and rice possible (including Harbin, Jiamusi, Shuangyashan, Hegang, Yichuan and Jixi). Other industry sources estimate Heilongjiang province added almost 1 MHa of corn and rice area in MY11/12 and lost 0.9MHa of soybean acreage, which fell to 3.46 MHa from 4.5 MHa in MY10/11. Post adjusted its MY12/13 soybean area down to 7.4 MHa (from the previously forecast 7.7MHa) to reflect these developments. As of this report, soybean planting is finished with normal weather conditions during the planting season. MY12/13 Rapeseed production forecast at 12.5 MMT Post forecasts a stable production for MY12/13 rapeseed at 12.5 MMT based on planted are of 7.05 MHa. Modest yield gains due to favorable weather conditions in most production regions compensates for a slight decline in planted area. The photo shows healthy rapeseed production in Hubei (end of April). CNGOIC estimated that MY12/13 rapeseed planted area declined by 2 percent (to 7.05 MHa) with production at 12.8 MMT, down 1.5 percent over the 13 MMT in MY11/12. The following table shows area estimates for major producing provinces (in 1,000 Ha and 1,000 MT) by CNGOIC which are generally lower than that reported by local official sources. CNGOIC’s May production estimate of 12.8 MMT is slightly lower than the 13 MMT official production data for MY11/12. 2010 2011 2012 (official 2012 CNGOIC 2012 CNGOIC estimate area (estimate area (production change) change) estimate) Hubei 1,160 1,142 +4% -2 to 3% 2,200 * Sichuan 947 960 No change No change NA Hunan 1,089 1,166 +3.3% No change or slightly NA up Anhui 691 667 -5.7% -5.7% 1,228 (down 8%)* Jiangsu 460 420 -3 to 4% -5% NA Jiangxi 546 521 +2.2% +2.2% NA Nation 7,370 7,200 +2% -2 to 3% (7,050) 12,800 *based on industry estimates Many analysts agree that rapeseed production of 13 MMT for MY11/12, as reported by the National Statistics Bureau, is high. Post field trips to Hubei, Hunan and Sichuan confirmed a reduced planted area for MY12/13 as farmers explained that planting rapeseed is not as profitable, averaging about $550/Ha based on an average selling price of RMB4,600/MT, as compared to the higher profits from wheat and vegetables. For instance, in Hanchaun/Hubei wheat profits are estimated at $860/Ha in MY11/12, while profits from vegetables and melon can reach several thousand dollars per hectare. A rapeseed trader estimated that profit from wheat was $250/Ha higher than rapeseed in MY11/12 in Zhongxiang region/Hubei (while total expenses for rapeseed was $880/Ha compared to the $760/Ha for wheat). Industry experts report that only when the price ratio between rapeseed and wheat exceeds 2.5:1 do farmers favor rapeseed. MY12/13 rapeseed yield is expected to be higher than the previous year due to favorable weather conditions. A field visit to Hangchuan/Hubei, Yueyang/Hunan and Wenjiang/Sichuan showed that growth and yield are rated as average to better than average compared to the previous year. Currently, the rapeseed harvest of rapeseed is at its peak and the sales price ranges from RMB4,800 to 5,200/MT (or $762 to $825/MT). [Note: Collecting rapeseed planted area/production data from thousands of households is virtually impossible for both government and industry. Farmers may make complicated planting plans using different crops (including vegetables, melon, wheat, corn, wheat, rice and grape) to maximize income and reduce risk on the limited land (including boundaries of fish pond/canal, slope of highway etc). The photo above shows rapeseed, corn and green pepper by strips in a plot, with watermelon in greenhouses in Hubei). China’s industry sources speculate that the government is likely to announce the MY12/13 rapeseed purchase policy in May. Industry insiders believe the purchase price will reach RMB5,000/MT (or $794/MT, up from the RMB4,600/MT in the previous year ) based on the increased production cost (labor and input prices) and the price ratio among crops. However, the State Grain Administration’s meeting on “2012 Summer Grain and Oilseed Purchase” held on May16 ended without any specific policy announcement on rapeseed purchase. For MY11/12, CNGOIC estimates the government purchased 2.55 MMT of that year’s crop. Crushers and traders are concerned about potential risks of the government increasing the floor price while the market prices for oil and meal remain uncertain. This could portend a tentative commercial approach to purchasing the new crop. On the other hand, some industry insiders believe traders and crushers may rush to purchase the new crop because the anticipation of reduced production, in relation to the excessive crushing capacity, may drive demand. (The above photo shows a household in Deyang/Sichuan harvesting her 0.2 acre of rapeseed). Other oilseed production The sharp decline in MY11/12 cotton profits will cause a 10 percent decline in cotton planted area and one MMT drop in cottonseed production in MY12/13. MY12/13 peanut production is forecast to return to normal production around 16 MMT following a record high 16.2 MMT in MY11/12. MY12/13 soybean imports likely to reach 60 MMT MY11/12 soybean imports are estimated at 57 MMT, up from previously estimated 55.8 MMT. As of the end of April, soybean imports had reached 33.1 MMT, up 12 percent over the same period in MY10/11. CNGOIC estimates soybean imports will reach 11.7 MMT in May and June, and combined imports of 13.5 MMT from July through September, making total imports of 58 MMT in MY11/12. CNGOIC reported that the Chinese government offered 600,000MT of soybean reserve for sale at price of RMB3,800/MT through auctions on May 24. The impact on the market seems to be limited. A review of soybean imports over the most recent six years, which shows an increase every year and a marked fluctuation every two years, with import growth significantly higher in MY07/08, MY09/10 and MY11/12, while domestic soybean production, however, shows a falling trend (ranging from 13 to 16 MMT per year) during this period. Current robust soybean imports support an import forecast of 60 MMT in MY12/13 as domestic oilseed production continues to decline. China’s feed production growth is a key factor driving soybean imports. Industry statistics show total feed production of 36.9 MMT in the first quarter of 2012, of which compound feed reached 24.2 MMT, both up 25.6 percent over the same period in 2011. The increasing scale of swine and poultry production nationwide continues to drive feed production and consumption. One of the largest animal husbandry producers based in Guangdong estimated that the group will consume 7.5 MMT of feed in 2012 as a result of expanded capacity and increased scale farming for swine and poultry. The group also plans to double the scale of the contracted poultry farms by 2015. Aquaculture feed, though relatively small in volume, maintains high growth, for instance up 40 percent in Zhanjiang, Guangdong Province in the first quarter of 2012. Government purchase of domestic and imported beans for state reserve continues to impact supply and demand as well. Demand for oilseed products remains promising According to analysis by COFCO, China’s largest agribusiness group, the per capita consumption of vegetable oil reached 19-20Kg per year and is expected to grow by 3 to 5 percent yearly (as compared to the averaged 5.7 percent yearly in recent 10 years) in the next 5 years. Feed production growth is forecast at 4 to5 percent yearly in the next 5 years to reach 212 MMT by 2016. Domestic oilseed production growth is forecast at 2 percent yearly in the next 5 years. CNGOIC estimates that the average yearly feed production and protein meal consumption increased by 8.7 percent and 7.8 percent, respectively in recent 5 years. Based on a forecast annual growth of 5 percent, China needs an additional 3.1 MMT of protein meal per year to meet the feed industry demand, converting to a demand for an additional 4 MMT of soybeans per year. China’s Ministry of Agriculture’s data show total industrialized feed production reached 169 MMT in 2011, up 4.3 percent (or a net increase of 7 MMT) over the previous year. Based on the 12th Five Year (2011-2015) Development Plan for Feed Industry, China’s total industrialized feed production is expected to reach 200 MMT by 2015, with an average yearly net increase of 7.6 MMT from 2011 to 2015. MY12/13 rapeseed imports are expected to grow MY12/13 rapeseed imports are forecast at 2.1 MMT, up from the estimated 2MMT in MY11/12 (up 400,000 MT from previous estimate) mainly driven by domestic demand, together with lift on import restrictions. In the beginning of 2012, the General Administration for Quality Supervision, Inspection and Quarantine (AQSIQ), China’s import authority approved 18 new rapeseed crushing plants, mainly located in non-rapeseed producing regions, for use of imported rapeseed, with 7 located in rapeseed-producing provinces (Zhejiang, Jiangsu and Inner Mongolia). This policy change (phyto restriction) has spurred imports from Canada and Australia. As of April 2012, rapeseed imports had already surged to 1.7 MMT, up 1 MMT and 400,000 MT, respectively, from the same period in MY10/11 and MY09/10. AQSIQ's suspension of imports of oilseed meals from India (due to quality concerns) since the beginning of 2012 is also likely to push rapeseed imports to make up the meal demand gap (as China imported 650,000 MT of rapeseed from India in 2011). CNGOIC estimates total rapeseed imports in 2012 will exceed 2 MMT. China's imports of rapeseed oil and meal increased in recent years (with about 700,000 MT/year and 1.2 MMT/year for oil and meal, respectively), indicating a growing supply gap of rapeseed products. CNGOIC estimates total crush capacity stands at 50 MMT with about 40 plants with daily capacity exceeding 1,000 MT. The average utilization rate remains very low at 20 to 30 percent (or operation time ranges from 2 to 3 months) so Chinese officials hope the release on rapeseed import restrictions will spur imports and raise the utilization rate. Rapeseed oil and meal will be listed in the Zhengzhou Commodity Exchange soon. According to Zhengzhou Commodity Exchange, the complete documents for listing rapeseed oil and meal in the Exchange were submitted to the relevant government agency for approval, and expect to be implemented in July of this year to facilitate risk management for domestic traders/crushers. PSD Table - Soybeans Oilseed, Soybean 2010/2011 2011/2012 2012/2013 China Market Year Begin: Oct Market Year Begin: Oct Market Year Begin: May 2010 2011 2012 USDA USDA O New Post Post USDA Official New Post fficial O New fficial Area Planted 8,500 8,520 8,000 7,650 8,000 7,400 Area Harvested 8,520 8,520 7,650 7,650 7,500 7,400 Beginning Stocks 13,259 13,259 14,558 14,058 13,758 14,258 Production 15,100 15,100 13,500 13,500 13,100 13,000 MY Imports 52,339 52,339 56,000 57,000 61,000 60,000 MY Imp. from U.S. 24,983 24,983 23,000 24,000 25,000 25,000 MY Imp. from EU 0 0 0 0 0 0 Total Supply 80,698 80,698 84,058 84,558 87,858 87,258 MY Exports 190 190 200 250 200 260 MY Exp. to EU 12 20 12 30 12 30 Crush 55,000 55,500 59,100 59,000 63,400 63,500 Food Use Dom. Cons. 9,100 9,100 9,200 9,200 9,300 9,250 Feed Waste Dom. Cons. 1,850 1,850 1,800 1,850 1,818 1,900 Total Dom. Cons. 65,950 66,450 70,100 70,050 74,518 74,650 Ending Stocks 14,558 14,058 13,758 14,258 13,140 12,348 Total Distribution 80,698 80,698 84,058 84,558 87,858 87,258 CY Imports 52,634 57,000 60,000 CY Imp. from U.S. 22,353 23,000 25,000 CY Exports 208 200 200 CY Exp. to U.S. 17 18 17 TS=TD 0 0 0 PSD Table –Rapeseed Oilseed, Rapeseed 2010/2011 2011/2012 2012/2013 China Market Year Begin: Oct Market Year Begin: Oct Market Year Begin: May 2010 2011 2012 USDA O N USDA ew Post t fficial O N USDA ew Post fficial O New Posfficial Area Planted 0 7,370 0 7,100 0 7,050 Area Harvested 7,370 7,370 7,100 7,100 7,000 7,050 Beginning Stocks 2,114 2,114 1,424 0 404 0 Production 13,100 13,100 13,000 12,500 13,000 12,500 MY Imports 930 930 1,800 2,000 2,100 2,100 MY Imp. from U.S. 0 0 0 0 0 0 MY Imp. from EU 0 0 0 0 0 0 Total Supply 16,144 16,144 16,224 14,500 15,504 14,600 MY Exports 0 0 0 0 0 0 MY Exp. to EU 0 0 0 0 0 0 Crush 14,170 15,594 15,350 14,050 14,920 14,150 Food Use Dom. Cons. 0 0 0 0 0 Feed Waste Dom. Cons. 550 550 470 450 450 450 Total Dom. Cons. 14,720 16,144 15,820 14,500 15,370 14,600 Ending Stocks 1,424 0 404 0 134 Total Distribution 16,144 16,144 16,224 14,500 15,504 14,600 CY Imports 1,262 1,500 2,000 CY Imp. from U.S. 0 0 0 CY Exports 0 0 0 CY Exp. to U.S. 0 0 0 TS=TD 0 0 0
Posted: 03 June 2012

See more from Cereals, Leguminous Crops, Oil Seeds in China

Expert Views    
China Plan for Expansion of Grain Production Capacity   By Foreign Agricultural Service
Oilseeds and Products Annual   By Foreign Agricultural Service
Hot Tips    
Grain and Feed Market in Guangdong, China   By Foreign Agricultural Service
China Oilseed Situation 2009   By Foreign Agricultural Service
Latest News    
Standard on Soybeans for Feedstuff   By Foreign Agricultural Service