Identifier
Created
Classification
Origin
08SHENYANG138
2008-09-29 06:44:00
CONFIDENTIAL
Consulate Shenyang
Cable title:  

SUBJECT: CHINA,S SUCCOTASH SECURITY-PLENTY OF CORN

Tags:  CH EAGR ECON PREL EIND EINT ELAB ENRG ETRD PGOV 
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VZCZCXRO3714
PP RUEHCN RUEHGH RUEHVC
DE RUEHSH #0138/01 2730644
ZNY CCCCC ZZH
P 290644Z SEP 08
FM AMCONSUL SHENYANG
TO RUEHC/SECSTATE WASHDC PRIORITY 8510
INFO RUEHOO/CHINA POSTS COLLECTIVE PRIORITY
RUEAIIA/CIA WASHDC PRIORITY 0147
RUEATRS/DEPT OF TREASURY WASH DC PRIORITY 0227
RHEHAAA/NSC WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY 0817
C O N F I D E N T I A L SECTION 01 OF 02 SHENYANG 000138 

SIPDIS

DEPT PLEASE PASS TO DEPARTMENT OF AGRICULTURE

E.O. 12958: DECL: 09/29/2018
TAGS: CH EAGR ECON PREL EIND EINT ELAB ENRG ETRD PGOV
SUBJECT: SUBJECT: CHINA,S SUCCOTASH SECURITY-PLENTY OF CORN
(INCLUDING FOR EXPORTS TO NORTH KOREA) BUT NOT ENOUGH BEANS

REF: A. SHENYANG 000014

B. SHENYANG 000251

C. BEIJING 009696

D. STATE 99968

Classified By: CONSUL GENERAL STEPHEN B. WICKMAN,
Reasons 1.4 B and D

C O N F I D E N T I A L SECTION 01 OF 02 SHENYANG 000138

SIPDIS

DEPT PLEASE PASS TO DEPARTMENT OF AGRICULTURE

E.O. 12958: DECL: 09/29/2018
TAGS: CH EAGR ECON PREL EIND EINT ELAB ENRG ETRD PGOV
SUBJECT: SUBJECT: CHINA,S SUCCOTASH SECURITY-PLENTY OF CORN
(INCLUDING FOR EXPORTS TO NORTH KOREA) BUT NOT ENOUGH BEANS

REF: A. SHENYANG 000014

B. SHENYANG 000251

C. BEIJING 009696

D. STATE 99968

Classified By: CONSUL GENERAL STEPHEN B. WICKMAN,
Reasons 1.4 B and D


1. (C) Summary. Jilin Grain, a key enterprise in China,s
drive for grain security, sees continued price pressure in
soy beans and oil. Jilin and other corporate entities in
China are taking major steps to increase the amount of
China-controlled soy plantation both in China and around the
world. The corn picture for China is much brighter according
to Jilin Grain, as improved technology and good weather more
than compensate for a decrease in corn plantation. China
will loosen export controls on corn to service demand in
Taiwan and North Korea, but otherwise will remain a
non-exporter of grain. End Summary.


2. (C) Vice-General Manager Feng Jilong of Jilin Grain Group,
China,s largest grain company, told Econoff Septermber 17
that while China faced some pricing pressure in its domestic
grain market -- largely due to increased costs for seed and
fertilizer and also becauseof rising demand -- China is
self-sufficient in grains and will not be overly influenced
by the recent high global commodity prices. Feng pointed out
that international spot market prices for rice are three
times China's domestic price, while corn and wheat are nearly
twice as high in the ternational market. Only in soy beans
and soy oil do global commodity prices impact China's
domestic market, Fend stressed. Unlike Western definitions,
which class soy as an oil seed, China,s concept of grain
includes soy beans and soy oil as an integral component.

According to Feng, soy is a key element in China,s grain
security strategy.


3. (C) Jilin Grain was the major purchaser for this summer,s
widely reported USD 450 million purchase of soy beans in the
U.S. market and, according to Feng, is likely to be the lead
agency for China,s participation in international grain
markets. In June, Jilin Grain also dispatched personnel to
Zambia to lease major amounts of arable land for soybean
production. However, Feng said plans to set up a crushing
facility in Johannesburg were scrapped due to political
instability in South Africa. (Jilin staff had the misfortune
to visit South Africa during this summer,s outbreak of
violence toward foreigners.) The African crop will be traded
in the regional market with the end goal of freeing up supply
elsewhere for China,s consumption.


4. (C) Additionally, private soy farmers in Heilongjiang
Province have negotiated leases for large tracts of land in
Russia,s Amur Province, according to Feng. These areas will
be farmed by Chinese workers and the harvest will be shipped
to China. Feng added that although current measures have
been adequate to ensure the supply of soy beans, major
problems remain in getting the beans crushed and the oil to
market. With most of the crushing in China controlled by
western firms, it is impossible to get them to deliver oil to
China,s market at prices below the world market. Feng
explained that major state-owned producers, including Jilin
Grain,s processing arm, would be forced to absorb losses in
the cooking oil market in order to maintain price stability.
He said that China would make a major push to increase the
crushing capacity of state-owned firms. According to Feng,
central government officials are anxious to avoid shortages
of cooking oil similar to the shortages of diesel fuel
earlier this year without raising prices. The only way to do
this is to have state-owned firms absorb the losses, he made
clear. (Feng noted that unlike the petroleum producers,
which had resisted operating at a loss because they had
listed on the Hong Kong and Shanghai markets, Jilin Grain was
still unlisted and had to absorb the loss.)


5. (C) With regard to corn and rice, Feng told Econoff that
the dilemma for China is to balance the need to control
prices in the face of rising domestic demand with the need to
provide farmers sufficient return on their investment. The
spring 2008 central government increase in the rice price was
not enough to ensure adequate rice production according to
Feng. Thus, the government this year provided free equipment
such as tillers and small tractors to marginal rice farming
operations throughout China.


6. (C) Feng said corn was in an interesting position this

SHENYANG 00000138 002 OF 002


year. Overall corn acreage decreased by a full percentage
point from last year's levels, due to a government pricing
policy that encouraged planting of soy at the expense of
corn. However, better planting techniques coupled with
exceptionally good weather led to a bumper corn crop. Jilin
Grain estimates that production in Jilin Province will be up
more than ten percent, while Heilongjiang will slightly
exceed last year,s levels with substantially less acreage
planted. Northeastern China is expecting a total yield of
160 million metric tons of corn this year.


7. (C) The government will take a very active approach to
managing the corn market as a key to its grain security
strategy, Feng continued. First the government will buy and
store as much corn as is necessary to maintain domestic price
floors and ensure that farmers have an incentive to plant.
Secondly, China will strictly limit the amount of corn
devoted to industrial use, storing part of the saved grain
and directing the rest for use in animal feed. China plans
to price feed corn at levels necessary to keep pig farmers
active. Feng said the government wants to prevent last years
radical drop in pork production, which eventually led to
shortages and major price increases in the retail pork
market. As long as wheat prices stay relatively low, Feng
explained, wheat would be the preferred feed for the poultry
industry. However, if wheat prices jump, central authorities
would release corn for the poultry market as well.


8. (C) China maintained a stock of about 6.7 million tons of
corn during the previous year, according to Feng, an amount
that will increase to at least 10 million tons. This would
make government stores the third largest demand input, after
livestock feed and industrial use, but surpass corn for human
consumption. China will use rampant industrial demand as
another market control mechanism by permitting more
industrial use if an abundant harvest puts too much downward
pressure on prices.


9. (C) Feng also noted that China plans to maintain most of
its corn stock in Northern China, with twenty to thirty
percent in Beijing, and roughly fifteen percent in Dalian,
Jinzhou, and Bayuquan respectively. Shekou and Zhangzhou in
the South will store the remainder.


10. (C) While China has generally stuck to its self-imposed
elimination of exports (ref B),the bumper corn crop will
allow substantial modification to that policy. According to
Feng, large quantities of corn will be exported over the next
year, but only to Taiwan and North Korea. Shipments to
Taiwan are not really exports, Feng explained. He went on to
say the shipments to North Korea will likely be in the form
of humanitarian assistance, although the press will report
these as sales. When pressed as to how large the shipments
to North Korea might be, Feng said it was &unlikely that
North Korean requests would be denied or reduced.8 Feng
suggested that if supplies are as large as hoped, China might
actually ship extra corn to North Korea in late 2008 or early

2009.


11. (C) Econoff,s visits to farms throughout Northeast
China indicate that this will indeed be a bumper year for all
crops grown in the region. The sunflower crop will also be
quite robust this year, and soybeans and corn both appear to
be on track for substantial gains over last year,s harvest.
China still has plenty of room for increasing yields,
however. The most striking visual difference between U.S.
farms and those in China is plant density. The Chinese plant
row crops much farther apart than their American
counterparts. Improved planting equipment and planting
methods could substantially increase plant population and
thus increase yield.
SWICKMAN