Concerns are mounting over the sufficiency of China’s grain supply after three typhoons hit the country’s main corn-growing region in quick succession over the past two weeks, flattening crops and pushing corn prices to their highest level in five years. The full extent of the storms’ impact on this year’s corn harvest is not yet known, but some analysts say the natural disasters in the northeastern corn region could lead to a drop in output in Heilongjiang and Jilin – two major corn-producing provinces. In an attempt to abate losses, the provincial government of Heilongjiang announced at the weekend that it had launched “a battle for disaster relief and self-rescue” for corn farmers, issuing them detailed instructions on how to salvage corn crops that had been flattened by heavy wind and rainfall. The expected drop in corn output comes at a time when the price of corn, a key ingredient in animal feed, has already risen sharply across China. This is partly because many farmers shifted from corn to soybean crops last year and earlier this year after the central government encouraged soybean growth to reduce the nation’s reliance on imports amid the trade war with the United States. The already tight balance between supply and demand for corn is increasingly tilting towards a supply shortage following the typhoons. Corn prices increased by nearly 30 per cent from the start of the year to 2,355 yuan (US$345) per tonne at the beginning of August, before falling slightly to 2,274 yuan per tonne at the end of the month, according to data from the National Bureau of Statistics. And the inflation in corn prices, in turn, has led to price rises in wheat, another key grain, as animal-feed producers try to replace corn with wheat as a raw material. In response to the situation, the central government has stepped up its auction of state corn reserves. “The price has fallen a bit, mainly because a lot of corn that the government auctioned has been sold to the market,” said Rosa Wang, a Shanghai-based analyst with agricultural data provider JCI. “And we are importing plenty of corn this year, so the price is falling slowly. But recently, because of the typhoons, we expect some output reductions, and for prices to go up again.” Wang said surging corn prices are being driven by rising demand from pig farms, which are recovering from last year’s outbreak of African swine fever that devastated the nation’s pig herd. China’s inventory of breeding sows grew 20 per cent in July from a year earlier, accelerating from a 3.6 per cent gain in June, according to the Ministry of Agriculture and Rural Affairs. June was the first month of positive growth since September 2013. Concerns over corn supplies are mainly focused on the amount of land planted with the crop and the level of government reserves. Five years ago, China still had an oversupply of corn, which led the government to cut back on some planting and to stop purchasing corn at above-market prices from farmers in the northeast to add to already full reserves. From 2015 to 2019, the total area planted with corn fell by 3 million hectares (7.4 million acres). After the US-China trade war started in July 2018, local governments even offered subsidies to encourage farmers to shift their crops from corn to soybeans to reduce reliance on imported US crops. “A potential decline in grain production will increase price pressure and dampen grain-processing companies’ profitability,” rating agency Fitch said in a report published this week. “The profit pressure is more pronounced for companies highly reliant on corn … as rising hog-feed demand and declining corn-planting area, as well as shrinking national corn reserves, are likely to further drive up corn prices.” The corn reserves that the government previously stockpiled have been shrinking rapidly this year. So far, there have been 15 rounds of auctions to help quell corn price increases. Up until the end of August, the government had sold about 54 million tonnes of reserves, leaving a reserve balance of only slightly more than 2 million tonnes at the moment, according to commodity consultancy Zhuochuang. That means the government will again need to stock up on local corn, expand corn-planting areas, or simply import more corn from other countries. Compared with a surge in domestic corn prices, imported corn is about 2 per cent cheaper this year, at around US$222 per tonne, according to Alexander Karavaytsev, an economist with the International Grains Council. “The sizeable spread between delivered and local prices clearly favours imports,” Karavaytsev said. According to data from China customs, in the first seven months of this year, China imported more than 4.5 million tonnes of corn, up 30 per cent from a year earlier. That is already close to the full-year purchase volume in 2019, and has surpassed that in 2018. China puts US tensions aside to boost phase one trade deal, food security with record corn purchase In late August, Chinese importers signed a deal to buy 400,000 tonnes of corn from the US, after purchasing 2 million tonnes from the US at the end of July. Nevertheless, Wang from JCI said this year’s corn shortage may not be a big issue, since there are still 30 million tonnes of corn from government reserve auctions that have not yet been picked up, meaning there is still an ample supply for the market to digest. After the first few rounds of auctions, the government has tightened rules to force grain traders to sell their supplies to end-users sooner after buying them. “I think the main problem will be when a supply gap emerges next year. It also depends on how much corn China buys from the US next year. A large-scale purchase could help the situation,” Wang said. Last year, China had a corn-supply deficit of 17 million tonnes that could expand to 25 million tonnes between this year and next, “which must be covered either by imports or [new] stocks”, Karavaytsev said.