China's road to agricultural self-sufficiency: reshaping markets, creating opportunities

China, a major demand center and driver of global agricultural markets, is actively pursuing an ambitious goal of achieving self-sufficiency in agriculture, but not without disrupting markets.

The plan serves many purposes for China, primarily in achieving food security, supporting domestic production and eliminating reliance on imports.

If realized, reduced to none imports from China, will significantly impact the global balance sheet, not excluding its two largest suppliers of corn and soybeans – the US and Brazil.

"China indeed has a long-term goal to become self-sufficient in agriculture," said Louis Kuijs, Asia-Pacific chief economist at S&P Global Ratings. "It remains to be seen to what extent it will meet this goal. China is traditionally good at achieving certain objectives while less good at achieving other goals."

The US Department of Agriculture projects China's corn production for 2024-25 at 292 million metric tons, up 1.09% year on year, and domestic demand at 313 MMt, up 1.95% year on year.

For soybeans, the USDA projects 2024-25 output at 20.7 MMt, down 0.7% year on year, while domestic demand is seen rising 4.19% year on year to reach 126.8 MMt.

China's corn imports are expected to remain unchanged on the year at 23 MMt, while soybean imports are expected to rise about 1% year on year at 109 MMt, according to USDA projections.

Meanwhile, China's Ministry of Agriculture forecasts 2024-25 imports of corn at 13 MMt and soybeans at 99.6 MMt.

Although China's turning away from imports will push its existing suppliers to look for alternatives or accommodate supplies within the domestic market, the plan faces some serious challenges ahead.

Aging demographics, slowing economy cloud demand

Over the past 30 years, China's rapid economic growth and increasing population have led to a growing demand for animal proteins, resulting in huge livestock and aquaculture industries, analysts at Commodity Insights said.

Much of China's or any country's demand for animal proteins can be attributed to its population demographic and spending capacity.

Both corn and soybeans are used as feedstuffs for cattle, which in turn is used for meat production.

A shrinking and aging population would require fewer calories, meaning that less meat would be produced, leading to a lower demand for animal feed.

The World Bank pegs China's GDP to grow by about 4.5% /year for the next five years, which points to an economic decline. From 1992 until 2023, China's GDP recorded an average growth of 8.92%, according to World Bank data.

"Even if China's real GDP grows more rapidly than the 4.5% expectation, animal protein consumption and, relatively, feedstuffs demand will likely slow or possibly decline," analysts said.

A short-lived preference for US corn

Commodity Insights forecasts China's corn imports from the US at 3.4 MMt for 2023-24, and 5.7 MMt for 2024-25, while it expects imports from Brazil at 12.9 MMt in 2023-24 and 6.6 MMt in 2024-25.

But according to market observers, this trend of increasing imports from the US and declining prospects with Brazil point not to a long-term trend, but a mere circumstantial deviation in the face of the current market environment.

First, Brazil's corn production is seen declining 12.15% from its record production in the marketing year 2022-23 to reach 115.8 MMt in MY 2023-24, due to divergent weather patterns affecting production.

Second, China is well known to show a preference for lower prices, turning to the cheapest option available.

Brazil's record corn production in the local MY 2022-23 enabled the country to offer the most competitive prices among all major producers.

Although corn prices are at some of the lowest levels in three years today, fueled primarily by ample supplies from South America, Brazilian prices are trading higher than its competitors.

China is expected to opt for US corn, but it's unlikely to become a long-term trend.

"Sino-American relations have encountered unprecedented challenges, and it is consistent with the current situation for Chinese buyers to seek stable and long-term supplies, which would reduce agricultural imports from the US," Shanghai JC Intelligence, a market information company said.

"We do not rule out the possibility of further deterioration in relations between the two countries, which could lead to a further decrease in imports from the United States," JCI added.

However, lower imports from China will bring serious challenges for the US.

The US values its role as a reliable supplier to China, and although the Chinese market is "difficult," there is no obvious alternative, Seth Meyer, chief economist of the USDA told Commodity Insights.

Driving soybean area expansion in Brazil

China has investments in Brazil covering various areas, including roads, railways, ports, which provide a convenient ecosystem for furthering bilateral trade.

In addition, China and Brazil have signed large currency swap agreements, which also strongly support agricultural trade.

In 2023, the US accounted for 23.81% of China's soybean imports while Brazil cornered 70.92%, according to customs data.

This proportion can be referenced for 2024, meaning that the share of imports from the US could go down further.

Much of Brazil's soybean area expansion in the past 30 years has gone to provide high-protein feed for China's ever-growing animal feeding sector, analysts said.

However, analysts believe that Brazil's soybean area expansion has now entered a period of stagnation.

Brazil's competitive advantage -- low costs, available land, double-cropping and a devalued currency – that made it a low-cost producer has now resulted in headwinds for area expansion.

"We forecast CME soybean futures to decline in 2024 due to high global supplies and diminishing demand from China," Commodity Insights analysts said in a report.

Beijing views importation as a risk to its security, and in the event of slowing demand from China, "something else has to slow down," Meyer said.

So, if China reduces its imports, where will the produce go?

Shifting supplies to the green corridor: biofuels

The impact of reduced imports from China would be devastating for US agriculture in the short run, especially for soybeans, said Commodity Insights Chief Agricultural Economist Paul Hughes.

"Both the US and Brazil would likely have to turn more aggressively toward domestic demand that would likely come in the form of more aggressive biofuels' programs and animal feeding," Hughes said.

The US and Brazil produce 80% of the world's ethanol, with the US MY 2024-25 corn for ethanol projected at 5.45 billion bushels, same as MY 2023-24, and Brazil's ethanol volume forecast at 6.8 billion liters, up 14.86% on year.

Similarly, Brazil's biodiesel mandate currently stands at a record B14, with the government targeting 20% by 2030 and the most optimistic industry expectations going as high as 25%, according to sources.

The USDA forecasts soybean oil for biofuels at 14 billion lbs for MY 2024-25, up 1 billion lbs on year.

Both countries have a promising trend for ethanol and biodiesel, which can potentially accommodate excess corn and soybean supplies in a large part, if not fully, should production and crushing capacities are developed further.

The supplementing allocation could then go toward animal feeding, which would potentially result in a surge of meat exports.

While China's plan of achieving self-sufficiency will have a significant impact on its existing suppliers as well as on global supply, the disruption could be balanced out through strategic allocation of excess supply within domestic markets, which in turn will create new prospects for the US and Brazil.