China’s Newfound Corn Stocks Not Enough for Ethanol Program

Revisions to China’s historical corn-production data, announced last week, raised expectations that China may now, finally, have enough corn to achieve its bioethanol gasoline goals by 2020. Alas, a Gro Intelligence projection shows that diverting enough of its corn crop to convert to ethanol, or importing more of the grain, would still throw China into a corn deficit, albeit not as wide a gap as expected before the revised crop data was revealed.

Before China revised its corn-production data, corn stocks sat far below demand required for an ethanol program by 2020. 

Under the revisions, China’s corn-production numbers stretching back a decade were increased by roughly 20 percent, while 2016 and 2017 corn stocks were raised upwards of 120 and 175 percent, respectively, according to USDA data.

After the corn-production data revisions, China's corn stocks still remain below demand, albeit less so than before. 

China’s mandate, announced last year, is to roll out ethanol-blended gasoline for motor-vehicle use nationwide to help combat rampant air pollution. Last year, Gro Intelligence took a dive into the ethanol production predicament faced by China. After looking at the data, we came away with some skepticism about the feasibility of accomplishing such a monumental objective without substantially increasing ethanol-production capacity and importing large quantities of corn or ethanol. Determining how much corn the Chinese would need to import also proved difficult due to the opaque nature of Chinese agricultural reporting.

Now, in light of significantly greater corn stocks, China’s situation is somewhat alleviated, but not so much so that the nation can be self-reliant on its corn to meet ethanol demand. If China chooses to forgo its ethanol program, they will enjoy a meager corn surplus in coming years. However, by tackling an E-10 program (mandating a blend of 10 percent ethanol in gasoline) or even an E-5 program (with 5 percent ethanol), China still falls significantly short—nearly 90 million tonnes short annually by 2030 if they decide to embark on the E-10 route. The forecasts are based on a model Gro Intelligence built using long-term projections for China’s population and GDP growth, demand-growth-rate forecasts, and modest increases in crop yields.

A 25-percent hike in ethanol import duties in 2017 suggests that China isn’t likely to meet this demand by importing ethanol. Going forward, monitoring the pace and progress of the 10 new ethanol-production facilities planned for construction in Northeast China, and tracking Chinese corn-import activity may provide insight into the ability of the country to realistically meet its ethanol goals for 2020. Using Gro Intelligence, subscribers will have data on Chinese corn and ethanol supply and demand as the bioethanol fuel program develops in the coming years.