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To: yard_man who wrote (7923)	2/12/2004 5:43:29 PM
From: russwinter	Respond to of 110194

Got zinc? How about food? This is an oh oh. Another so so crop in China, would be BAD NEWS. A glance at current Chinese growing conditions: weather.tradingcharts.com Wheat regions: spectrumcommodities.com Corn regions: spectrumcommodities.com Reuters UPDATE - US attache sees reduced China 2004/05 grain stocks Thursday February 12, 5:18 pm ET CHICAGO, Feb 12 (Reuters) - The U.S. Agriculture Department's attache in Beijing released the following report, dated Feb. 6, on the outlook for China's grain crops. Selected tables from the report appear after the text. Attache reports are not official USDA data. Report Highlights: Grain production fell to its lowest level in a decade in 2003, but despite government encouragement to plant more, grain area is unlikely to increase in 2004 as returns are higher from competing crops. Although consumption is falling, demand exceeds production. Stocks and exports will fall and imports should reach their highest level in several years. Overview Policy For several years China has been shifting from a policy of self-sufficiency to a more economically rational goal of reducing area devoted to inefficiently-produced row crops and increasing area for higher-value, labor-intensive crops in which China has some comparative advantage. In 2003, however, the decline in area planted combined with poor weather led to the smallest grain harvest in more than a decade. As grain prices suddenly rose for the first time in years, government announcements once again emphasized self-sufficiency and encouraged production. Nevertheless it is believed that a substantial increase in production is unlikely, as land is limited and competing crops give better returns. Stocks of all grains, which had been enormous, are estimated to have fallen to their lowest levels in years, although how low remains a state secret. In 2004 China will import more wheat than it has in several years. Exports are forecast to decline, and feed millers in the South may import corn before the fall harvest if market conditions are suitable. In 2003, SARS created a sharp short-term drop in demand for livestock products and therefore feed, but the recovery was so fast that overall feed consumption for the year did not fall. As this report is written it is far too early to predict the ultimate impact of the outbreak of avian influenza on feed demand; large-scale depopulating of poultry flocks would obviously reduce feed demand. How to address the enormous and growing rural-urban income gap is a stated priority of the current administration, now in office for a year. It appears that an internal debate continues on the extent to which China should rely on market forces to rationalize its grain markets and ultimately transform the rural economy. A more market-oriented approach likely would lead to continuing decline in grain production and an increase in imports. A more traditional "managed" approach might include support programs, although how these would be funded is unclear. Tariff Rate Quotas (TRQ's) On entry to the WTO China instituted Tariff Rate Quotas (TRQ) for wheat, rice, corn, and several other commodities. These quotas were phased in and reached final levels, based on 5 percent of historical consumption, in 2004. Quota fill rates for grain have been very low (see table) and U.S. trade officials have pressured Chinese authorities to increase the responsiveness and transparency of the allocation system. A percentage of the quota is reserved for non-state-owned enterprises: 10 percent for wheat, 40 percent for corn and 50 percent for rice (both short and long grain). Biotechnology China remains a leading investor in agricultural biotechnology research, but continues to go slow on commercialization of food crops; so far only transgenic cotton is approved for planting. Risk assessments for import of U.S.-approved transgenic corn, soy and canola varieties have been underway for the past year and are expected to be completed before April 2004 when interim regulations expire. Chinese researchers reportedly have developed a pest-resistant Bt rice variety but so far have not received authorization to release it for planting. Wheat Production and Stocks The preliminary official figure for wheat output in MY03 is about 86 million metric tons (mmt); output for MY04 is forecast slightly lower. Winter wheat production accounts for about 95 percent of total wheat output. Despite the government's efforts to encourage more wheat planting, farmers in major winter wheat production region continued to switch to more profitable cash crops such as cotton and oilseeds. According to official data, winter wheat acreage in MY04 is unchanged or slightly lower than previous year. Although higher than the year before, MY03 yields were reduced by both drought in summer and excessive rain at harvest; preliminary surveys indicate that because of late planting MY04 yields will not exceed MY03. The quality of domestic wheat varieties has improved substantially over the past several years through government breeding support programs. The government will invest more in setting up demonstration wheat farms and seed production bases in the coming years. Although total wheat acreage has fallen, the share of high quality wheat acreage grew to about 30 percent of MY03 acreage from 20 percent in MY02 because of government incentives to seed distributors as well as rising market demand. Still a state secret, stocks are estimated to be at the lowest level in years with the decline expected to continue. MY04 ending stocks are forecast to be less than half of MY02 ending stocks. The state-held wheat reserve is reportedly extremely low. Consumption As discussed in the previous annual report, overall wheat consumption has plummeted in the past decade as consumer incomes have risen and diets become more varied. Per capita urban household total grain purchases fell from 130.7 kg in 1990 to 78.5 kg in 2002; per capita rural household wheat consumption fell 7 percent in just two years, from 2000 to 2002. How much farther per capita consumption will fall will depend on the extent to which increased consumption of bread and cakes by urban consumers will offset the drop in consumption of traditional wheat products. Demand for specialized gluten content wheat has been driven up steadily over the past years as breads and cakes are gaining popularity. Trade Despite declining consumption, demand continues to exceed domestic production and MY03 imports will be the highest in several years. Tight supplies and domestic wheat price hikes will boost the competitiveness of imported wheat in MY04, although high ocean freight rates may limit import growth. In addition to market forces, political concerns also may influence government purchases; recent contracts for U.S. wheat coincided with a Sino-U.S. summit meeting in Washington. China has committed to purchase about 3 mmt in 2004 from Australia, Canada and the United States. Some of this wheat will enter the state grain reserve system, according to trade source.