The specter of Chinese agricultural demand once again haunts global markets. Major policy shifts have been touted during the country’s twice-a-decade 2017 Communist Party Congress, many of which directly or indirectly affect agriculture. While some are more fanciful than others, the predominant share of policies move China’s economy farther left toward liberalization, to increasingly resemble the economies of Western countries.
Daily habits increasingly mirror those of the West, too. China is now the world’s largest car market, having surpassed the United States in 2009. As in the US, Chinese citizens are protesting cars’ contribution to smog. In September, China announced an ethanol mandate much like the one in its largest trading partner. Although its eventual effect on emissions is not entirely clear, China’s mandate will also serve to reduce the country’s bloated and rapidly deteriorating corn stocks—by far the largest in the world.
Will nationwide use of ethanol push China to import more corn and build more ethanol processing plants? Or will China simply import more ethanol? Will they import any additional crops at all, or is it a more nuanced story?
Until 2016, the Chinese government bought corn from farmers at a minimum price as part of a decades-long stockpiling program. Enacted to ease food security fears following several post-World War II famines, these price supports have long been inefficient and outdated given China’s newfound wealth.
The costly stockpiling program has left China with substantial reserves of corn. According to government media, China’s corn output stood at around 220 million tonnes in 2016, while stocks amounted to 230 million tonnes. According to the USDA, however, beginning stocks were only 110 million tonnes at the outset of 2016. Regardless, these stocks represent the largest accumulation of corn in the world.
This policy was scrapped in October 2016—one step forward for China toward becoming more market-oriented as reiterated in its “Document 1” this year, the first major policy document released by China’s Ministry of Agriculture in 2017. The country’s corn stocks have tumbled since price support ended, but they are still the largest in the world. The world’s largest corn consumer, the US, maintains a mere 63.2 million tonnes, making China’s stockpiling seem even more excessive. The USDA projects Chinese corn stocks will fall to a five-year low, a still-large 78.7 million tonnes, by the end of 2017.
A portion of this drop may be due to farmers in China’s northeastern corn belt holding onto their crops hoping for a price rise, but it’s likely that farmers will not be able to hold onto their harvests for long because they lack adequate storage.
To help make use of the excess stock, China announced in September 2017 that bioethanol gasoline will be used nationwide by 2020, specifically E-10—a blend of 10% ethanol in gasoline that is also mandated in the US. According to global ag analysts, the directive will create a noticeable corn supply shortfall in the short term. According to the state-run Xinhua news agency, however, China will not rely on imports to meet demand.
It should be noted that this is not China’s first foray into ethanol mandates. China had tested a corn-to-ethanol policy through pilot programs in 2004 as part of the efforts to cut emissions and advance new energy. In fact, E-10 is already mandated in eleven provinces and forty municipalities nationwide.
China is also the world's third-largest bioethanol producer, producing at least 2 million tonnes a year. Analysts estimate that, given rapidly growing demand for fuel, “nationwide use” of bioethanol gasoline by 2020 will come in between 12 and 15 million tonnes of ethanol annually after implementation.
“The government plan to increase ethanol fuel production was for consuming corn stocks,” Han Jun, director of the central agricultural work leading team office, told official Chinese government media. To meet the 2020 goal, however, China will need to build plants rapidly and import corn or draw down stockpiles. Alternatively, it could just import the ethanol.
Green Plains chief executive Todd Becker said, “Our intelligence says, there’s somewhere in the range of nine operating ethanol plants in China that today are producing about 650,000,000 gallons (1.94 million tonnes)” of the biofuel, although with capacity for 3 million tonnes. On the other end of the spectrum, analysts at S&P Global Platts estimate that China has between 1.1 billion gallons (~3.3 million tonnes) and 2 billion gallons (~6 million tonnes) of ethanol capacity. China will therefore need between 6 and 13 million tonnes of additional ethanol to meet demand by 2020, based on the range of predictions.
A Chinese consulting firm, JC Intelligence, also claimed that more than 10 new ethanol plants will be built in the northeastern cornbelt. Reuters estimates suggest that an ethanol plant of average capacity—about 300,000 tonnes per year—costs about 1 billion yuan ($153 million) to build. Most of those will go on line next year, adding an approximate 3 million tonnes of capacity. China’s remaining demand for imported ethanol would then fall to a range of 3 to 10 million tonnes.
Chinese demand for corn ethanol will be even lower. China has made noticeable efforts to develop more capacity for cellulosic ethanol, an endeavor that more developed countries have struggled with so far. The USDA estimates that only about 75 percent of China’s ethanol is derived from corn, the remainder of which is sourced from a blend of wheat, cassava, sorghum, and corn stover. China has stated its desire to have all ethanol be cellulosic by 2025, but experts are generally unified in their doubt of the potential for that technology. A roughly 75 percent corn ethanol feedstock remains likely by 2020.
Therefore, if they choose to import the ethanol, China’s demand will be closer to the range of 2.25 to 7.5 million tonnes, the mean of which would be 4.81 million tonnes. If they choose to import corn instead, China will need to import between 6.75 and 22.5 million tonnes of corn (using an implied corn-to-ethanol ratio of 3:1).
China also hiked import duties of ethanol from 5% to 30% in 2017, further indicating a belief that the country can go it alone. The government said it adjusted the tax to “protect” the domestic industry, and the move stands in deep contrast to prior preferential import tax rates on ethanol purchases from Brazil and the US.
Ultimately China’s attempt to push nationwide E-10 fuel ethanol use by 2020 is an arbitrary goal set by a government agency. If they fail to reach their stated targets, there is a decent chance that nothing happens. China has demonstrated its resolve to liberalize its economy but often as a secondary priority to growth and security. If its corn stocks and urban smog are effectively reduced by the policy, the government is likely to consider it a success regardless of adoption rates.
Assuming China does achieve nationwide E10 use by 2020, the biggest obstacle to understanding how much corn the country will import is the opaque nature of China’s tightly-controlled agricultural system. China has the current ability to produce between 2 and 6 million tonnes of ethanol, according to various predictions from industry analysts. With between 13 and 50 percent of China’s potential ethanol demand already available from domestic production, it will be difficult to make bets on the situation. The intelligence regarding the construction and capacity of new Chinese ethanol plants is even more obscure.
In a more unlikely scenario, China does not achieve its goal yet still enforces its arbitrary standards. The United States will be the main beneficiary if China chooses to import either unprocessed corn or ethanol. The US has a big advantage over Brazil due to the North American country’s stark trade deficit with China. With so many empty backhauls from US ports, corn and ethanol producers will have essentially free transport back across the Pacific. This phenomenon also explains the US shipping unprocessed beans over to China in roughly equal volume to Brazil despite a generally unfavorable bean price differential. Even with the 30% tax, US ethanol could still be competitively priced for China, according to both Green Plains and Archer Daniels Midland executives.
We at Gro believe that, regardless of magnitude and enforcement, China’s mandate will tighten global corn supplies, leading to a more bullish price environment. The impact of the program on global ethanol producers will depend on Chinese implementation decisions. Whether China imports ethanol will likely depend on the pace of growing factory production in the country’s northeast. We recommend paying close attention to developments between Syngenta and ChemChina; if Chinese corn yields improve significantly due to widescale GM adoption, the odds are even slimmer that China will need to import corn. Thus, we recommend using Gro Intelligence to help monitor prices and conditions of China’s coming corn crops.
What Information Do We Collect?
The information we gather enables us to personalize, improve and continue to operate the Services. We collect the following types of information from our users.
IP Address Information and Other Information Collected Automatically:
· We automatically receive and record information from your web browser when you interact with the Services, including your IP address and cookie information. This information is used for fighting spam/malware and also to facilitate collection of data concerning your interaction with the Services (e.g., what links you have clicked on).
· Generally, the Services automatically collect usage information, such as the number and frequency of visitors to the Site. We may use this data in aggregate form, that is, as a statistical measure, but not in a manner that would identify you personally. This type of aggregate data enables us and third parties authorized by us to figure out how often individuals use parts of the Services so that we can analyze and improve them.
Information Collected Using Cookies:
· Most browsers have an option for turning off the cookie feature, which will prevent your browser from accepting new cookies, as well as (depending on the sophistication of your browser software) allowing you to decide on acceptance of each new cookie in a variety of ways.
We collect statistical information about how users collectively use the Services (“Aggregate Information”). Some of this information may be derived from Personal Information. This statistical information is not Personal Information and cannot be tied back to you or your web browser.
How, and With Whom, Is My Information Shared?
IP Address Information:
Information You Elect to Share:
We share Aggregate Information with our partners, service providers and other persons with whom we conduct business. We share this type of statistical data so that our partners can understand how and how often people use our Services and their services or websites, which facilitates improving both their services and how our Services interface with them. In addition, these third parties may share with us non-private, aggregated or otherwise non Personal Information about you that they have independently developed or acquired.
Information Shared with Our Agents:
We employ and contract with people and other entities that perform certain tasks on our behalf and who are under our control (our “Agents”). We may need to share Personal Information with our Agents in order to provide products or services to you. Unless we tell you differently, our Agents do not have any right to use Personal Information or other information we share with them beyond what is necessary to assist us. You hereby consent to our sharing of Personal Information with our Agents.
Information Disclosed Pursuant to Business Transfers:
In some cases, we may choose to buy or sell assets. In these types of transactions, user information is typically one of the transferred business assets. Moreover, if we, or substantially all of our assets, were acquired, or if we go out of business or enter bankruptcy, user information would be one of the assets that is transferred or acquired by a third party. You acknowledge that such transfers may occur, and that any acquirer of us or our assets may continue to use your Personal Information as set forth in this policy.
Information Disclosed for Our Protection and the Protection of Others:
Information We Share With Your Consent:
Except as set forth above, you will be notified when your Personal Information may be shared with third parties, and will be able to prevent the sharing of this information.
Is Information About Me Secure?
We store all of our information, including your IP address information, using industry-standard techniques. We do not guarantee or warrant that such techniques will prevent unauthorized access to information about you that we store, Personal Information or otherwise.
What Information of Mine Can I Access?
You can access and delete cookies through your web browser settings.
California Privacy Rights: Under California Civil Code sections 1798.83-1798.84, California residents are entitled to ask us for a notice identifying the categories of personal customer information which we share with our affiliates and/or third parties for marketing purposes, and providing contact information for such affiliates and/or third parties. If you are a California resident and would like a copy of this notice, please submit a written request to the following address: 1156 6th Ave, 7th Floor, New York, NY 10036
What If I Have Questions or Concerns?
If you have any questions or concerns regarding privacy using the Services, please send us a detailed message to email@example.com. We will make every effort to resolve your concerns.
Effective Date: March 11, 2014
b. You shall not (directly or indirectly):i. take any action that imposes or may impose (as determined by us in our sole discretion) an unreasonable or disproportionately large load on our (or our third party providers’) infrastructure;ii. interfere or attempt to interfere with the proper working of the Services or any activities conducted on the Services;iii. bypass, circumvent or attempt to bypass or circumvent any measures we may use to prevent or restrict access to the Services (or other accounts, computer systems or networks connected to the Services);iv. use manual or automated software, devices, or other processes to “crawl” or “spider” any page of the Site;
v. harvest or scrape any Content from the Services;
vi. otherwise take any action in violation of our guidelines and policies;vii. decipher, decompile, disassemble, reverse engineer or otherwise attempt to derive any source code or underlying ideas or algorithms of any part of the Services (including without limitation any application), except to the limited extent applicable laws specifically prohibit such restriction;viii. modify, translate, or otherwise create derivative works of any part of the Services; orix. copy, rent, lease, distribute, or otherwise transfer any of the rights that you receive hereunder.c. We also reserve the right to access, read, preserve, and disclose any information as we reasonably believe is necessary to:i. satisfy any applicable law, regulation, legal process or governmental request;ii. enforce these Terms of Service, including investigation of potential violations hereof;
iii. detect, prevent, or otherwise address fraud, security or technical issues;
iv. respond to user support requests; or
v. protect the rights, property or safety of us, our users and the public.4. Third Party Services. The Services may permit you to link to other websites, services or resources on the Internet, and other websites, services or resources may contain links to the Services. When you access third party resources on the Internet, you do so at your own risk. These other resources are not under our control, and you acknowledge that we are not responsible or liable for the content, functions, accuracy, legality, appropriateness or any other aspect of such websites or resources. The inclusion of any such link does not imply our endorsement or any association between us and their operators. You further acknowledge and agree that we shall not be responsible or liable, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any such content, goods or services available on or through any such website or resource.5. Termination. We may terminate your access to all or any part of the Services at any time, with or without cause, with or without notice, effective immediately. All provisions of these Terms of Service which by their nature should survive termination shall survive termination, including, without limitation, ownership provisions, warranty disclaimers, indemnity and limitations of liability.6. Warranty Disclaimer.a. You release us from all liability for you having acquired or not acquired Content through the Services. We make no representations concerning any Content contained in or accessed through the Services, and we will not be responsible or liable for the accuracy, copyright compliance, or legality of material or Content contained in or accessed through the Services.b. THE SERVICES AND CONTENT ARE PROVIDED “AS IS”, “AS AVAILABLE” AND WITHOUT WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF TITLE, NON-INFRINGEMENT, MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, AND ANY WARRANTIES IMPLIED BY ANY COURSE OF PERFORMANCE OR USAGE OF TRADE, ALL OF WHICH ARE EXPRESSLY DISCLAIMED. WE, AND OUR DIRECTORS, EMPLOYEES, AGENTS, SUPPLIERS, PARTNERS AND CONTENT PROVIDERS DO NOT WARRANT THAT: (I) THE SERVICES WILL BE SECURE OR AVAILABLE AT ANY PARTICULAR TIME OR LOCATION; (II) ANY DEFECTS OR ERRORS WILL BE CORRECTED; (III) ANY CONTENT AVAILABLE AT OR THROUGH THE SERVICES IS FREE OF VIRUSES OR OTHER HARMFUL COMPONENTS; OR (IV) THE RESULTS OF USING THE SERVICES WILL MEET YOUR REQUIREMENTS.7. Limitation of Liability. IN NO EVENT SHALL WE, NOR OUR DIRECTORS, EMPLOYEES, AGENTS, PARTNERS, SUPPLIERS OR CONTENT PROVIDERS, BE LIABLE UNDER CONTRACT, TORT, STRICT LIABILITY, NEGLIGENCE OR ANY OTHER LEGAL OR EQUITABLE THEORY WITH RESPECT TO THE SERVICES FOR ANY (I) LOST PROFITS, DATA LOSS, COST OF PROCUREMENT OF SUBSTITUTE GOODS OR SERVICES, OR SPECIAL, INDIRECT, INCIDENTAL, PUNITIVE, COMPENSATORY OR CONSEQUENTIAL DAMAGES OF ANY KIND WHATSOEVER, SUBSTITUTE GOODS OR SERVICES (HOWEVER ARISING), (II) BUGS, VIRUSES, TROJAN HORSES, OR THE LIKE (REGARDLESS OF THE SOURCE OF ORIGINATION), OR (III) DIRECT DAMAGES IN EXCESS OF $50.00.8. Governing Law and Jurisdiction. These Terms of Service shall be governed by and construed in accordance with the laws of the State of New York, including its conflicts of law rules, and the United States of America. You agree that any dispute arising from or relating to the subject matter of these Terms of Service shall be governed by the exclusive jurisdiction and venue of the state and Federal courts of New York County, New York.9. Miscellaneous.a. Modification. We reserve the right, in our sole discretion, to modify or replace any of these Terms of Service, or change, suspend, or discontinue the Services at any time. Your continued use of the Services following notification of any changes to these Terms of Service constitutes acceptance of those changes.b. Entire Agreement and Severability. These Terms of Service are the entire agreement between you and us with respect to the Services, including use of the Site, and supersede all prior or contemporaneous communications and proposals (whether oral, written or electronic) between you and us with respect to the Services. If any provision of these Terms of Service is found to be unenforceable or invalid, that provision will be limited or eliminated to the minimum extent necessary so that these Terms of Service will otherwise remain in full force and effect and enforceable. The failure of either party to exercise in any respect any right provided for herein shall not be deemed a waiver of any further rights hereunderc. Force Majeure. We shall not be liable for any failure to perform our obligations hereunder where such failure results from any cause beyond our reasonable control, including, without limitation, mechanical, electronic or communications failure or degradation.d. Assignment. These Terms of Service are personal to you, and are not assignable, transferable or sublicensable by you except with our prior written consent. We may assign, transfer or delegate any of our rights and obligations hereunder without consent.e. Agency. No agency, partnership, joint venture, or employment relationship is created as a result of these Terms of Service and neither party has any authority of any kind to bind the other in any respect.f. Notices. Unless otherwise specified in these Term of Service, all notices under these Terms of Service will be in writing and will be deemed to have been duly given when received, if personally delivered or sent by certified or registered mail, return receipt requested; when receipt is electronically confirmed, if transmitted by facsimile or e-mail; or the day after it is sent, if sent for next day delivery by recognized overnight delivery service. Electronic notices should be sent to firstname.lastname@example.org. No Waiver. Our failure to enforce any part of these Terms of Service shall not constitute a waiver of our right to later enforce that or any other part of these Terms of Service. Waiver of compliance in any particular instance does not mean that we will waive compliance in the future. In order for any waiver of compliance with these Terms of Service to be binding, we must provide you with written notice of such waiver through one of our authorized representatives.h. Headings. The section and paragraph headings in these Terms of Service are for convenience only and shall not affect their interpretation.Contact. You may contact us at the following address: 1156 6th Ave, 7th Floor, New York, NY 10036.