The needs of China

    When China was awarded the Summer Olympics back in 2001, it was generally thought that this would bring them closer to the world community. Riots and demonstrations in Tibet are showing us that this is not the case. Their record in human rights continues to lag behind the rest of the world.
    The concerning part of this is the historic fact that all government overthrows in China have come from rural interests and have been driven largely by the lack of food. Between 2002 and 2006, their milk consumption increased 160 per cent, along with demand for eggs and aquatic foods  Grain stocks in China are dwindling beside an increasing livestock production.  Analysts at the Pro Exporter outlook meeting in Kansas City in mid-March predicted that China will import corn during the ‘08/’09 growing season. The corn crop that we will be planting in a few weeks will be their likely source. 
    The Chinese have stopped approving new ethanol plants in an attempt to limit the drain on their grain stocks. They have also started increasing the protein levels in their livestock feeds in an attempt to increase feed efficiency. There seems to be an attempt by the Chinese to increase the availability of food for this summer’s Olympic Games. They have imported pork from the U.S. and are buying large amounts of soybeans from us and from South America.  Their need for soybeans is highlighted by a 12 percent increase in vegetable oil consumption this year and as a source of protein for livestock feed. 
    During all these changes, the Chinese have had their Yuan currency tied to the U.S. dollar to determine the Yuan’s international value. Also, they have been exporting a massive amount of goods to the U.S. in exchange for dollars.  They now see the huge reserve of U.S. dollars that they hold, losing value as our currency loses value.  The most obvious solution for this is to spend some of those dollars on stuff that they need, such as food products from the U.S. 
     At the same time, the supply/demand analysis for U.S. crops this season and for the next 10 years suggests that our supplies will be stretched to their limits. We are facing a real shortage of productive acres. The current analysis for next season in the U.S. needs some fantasy to make the supply/demand equation work.  The survey-based acreage of corn and beans and trend yields, along with the best estimates of demand, suggests no tolerance for unexpected demand or any kind of yield adversity for any of our grain crops.
    The Chinese situation is currently unexpected demand for corn, and there has never been a crop year in this country or any other country that did not have some crop adversity some time during the year that causes concern for yield.
    Currently, the use of ethanol in the U.S. is increasing by about 25 percent per year. In another year, the disappearance of corn into ethanol will be double our current robust export docket. We are now getting only a few percent of our gasoline from ethanol, which is made from corn. It is only a small step from the current high-priced grain situation here in the U.S. to a runaway market, similar to the Minneapolis wheat market of February that went to almost $20/bushel in futures.
    This situation must be taken as a possible concept, not as a prediction. China could tip the balance by buying some of our corn. A little weather problem during the growing season could also do it.
    Our grain prices have no room for adversity or surprise.