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China’s Bold Move

Whenever a country with 20 percent of the world’s population makes a policy decision, the rest of the world takes notice. Recently, China announced plans to blend 10 percent ethanol into the nation’s fuel supply. According to Mark Welch, Texas A&M Ag Extension economist, this would mean that about 4 billion gallons of ethanol would be needed to achieve the mandate consuming about 36 mmt or 1.4 billion bushels of corn, which is about 17 percent of current corn production in China.

However, China already has a stockpile of 200 million tons of corn, enough to feed their own 1.4 billion people for more than a year, created from policies made decades ago. As many as 36 new ethanol plants are needed to meet the demand and Beijing’s bold timeline to E10 gasoline across the world’s largest car market by 2020, potentially depleting the government stockpile in just over four years.

Welch says that some in China are also encouraging the government to suspend the minimum support price for wheat and rice. Given recent reform of the corn policy, the relatively high support prices of wheat and rice are expected to cause corn production to shift towards these other crops, boosting already large stocks. The support price for wheat is 2,360 to 2,300 RMB per ton (about $9.50 per bushel) and rice 2,600 to 3,000 RMB (about $18/cwt.).

The change is part of China’s push to clean up the environment, particularly their air. While it will take a while to see if they can pull off their ambitious timeline, there is some speculation that to make it work initially would require importing ethanol until plants can come online. After that, could it be that corn would be needed? Or if China’s producers dive head-long into corn, does that open markets for more rice, wheat and other crops? Is will be interesting to watch.