China’s corn harvest is poised to decline for the first time in four years after flooding in its biggest-producing province and drought in its fifth largest cut yields, easing a global glut as the U.S. reaps a record crop.
Output by the world’s second-biggest corn grower fell 3.2% to 199.1 million metric tons, according to SGS SA, which carried out 302 interviews in the seven largest growing areas during the harvest in September and October for Bloomberg. The state-owned China National Grain & Oils Information Center expects a 4.6% advance to 215 million tons and a unit of the U.S. Department of Agriculture projects a 2.1% gain to 210 million tons.
Smaller harvests and benchmark prices that slumped 50% from the record set in 2012 signal Chinese buyers will import the maximum 7.2 million tons allowed by annual government quotas. Futures have tumbled to a three-year low, curbing income for farmers from Brazil to Ukraine while lowering costs for Tyson Foods Inc. and other poultry producers.
“There is obviously speculation on whether some of the current projections for Chinese production are incorrect,” said Luke Mathews, a commodity strategist at Commonwealth Bank of Australia in Sydney. “If the market is overestimating the size of the Chinese corn crop, and therefore imports are more than the market previously expected, we will see upward momentum in global grain prices.”
U.S. corn for shipment to China in December already costs 18% less than local grain, according to Shanghai JC Intelligence Co., a research company. Feed mills bought at least 1.3 million tons of U.S. supply in October and began placing orders for next year, according to Shanghai JC, which is forecasting a 4.6% gain in the Chinese crop.
Futures plunged 39% to $4.2475 a bushel on the Chicago Board of Trade this year, the biggest drop among 24 commodities tracked by the Standard & Poor’s GSCI Spot Index, which slid 5.7%. Corn on China’s Dalian Commodity Exchange retreated 3.7% to 2,344 yuan a ton. The MSCI All-Country World Index of equities advanced 17% and the Bloomberg U.S. Treasury Bond Index lost 2.4%.
Chinese farmers planted 35.3 million hectares (87 million acres) of corn, 0.7% more than a year ago, Geneva-based SGS estimated. That compares with 39.4 million hectares in the U.S. SGS used five teams of two surveyors to conduct face-to- face interviews with farmers in central-north and northeast China. Its estimated margin of error is 5.7%.
The harvest in Heilongjiang province in China’s northeast, the biggest growing region, contracted 5.7% because of flooding while water damage in Shandong cut output by 22%, according to SGS. A severe mid-season drought in Henan reduced its crop by almost 15%, SGS said. Production in Jilin rose 13% while in Liaoning it climbed 9.2%.
Excessive rainfall was cited as the cause of bad weather in 52% of cases, from 19% a year earlier, SGS said. Reports of severe insect damage increased by 10 percentage points to 23% of the total, SGS found. Reports of crops severely damaged by disease rose to 6% from 4%.
“It’s been an extremely variable year,” said Mark Oulton, the market research director for SGS. “When you have two top producing provinces suffering from serious problems, it has a big drag effect.”
The average yield across the survey area was 5.65 tons a hectare, 3.8% less than last year’s official government data, according to SGS. The average yield for this year’s U.S. crop was forecast at 9.75 tons by the USDA in September. More than half of Chinese corn farms are holdings of one hectare or less and tended by the landowner, according to SGS.