A key factor behind surging agricultural imports has been China’s need to rebuild and feed its hog population following a calamitous outbreak of African swine fever. By some estimates, the virus had wiped out half the domestic hog population in 2018 and 2019, which has since been built back to nearly 90%of previous levels. Furthermore, much of this new capacity has been industrial-style, large-scale hog operations, which use a significant amount of soybean meal crushed from soybeans and corn in their feed mix.  

New initiatives improve subsidies for domestic corn and soybean producers and encourage high-quality animal feed crops such as silage corn. Another focus is to encourage the adoption of modern agricultural technologies – such as gene editing, synthetic biology, and AI – to boost the seed industry and industry yields, which remain low by international standards. The $43 billion purchase of Swiss agri-tech group Syngenta in 2016 by the state-owned ChemChina, could well hint at a bigger move in this direction.

The road ahead to food self-sufficiency, however, is far from smooth and pitted with challenges, questions, and concerns. A longstanding obstacle has been winning Chinese public acceptance of biotech crops. While China has been planting insect-resistant cotton and biotech papaya since 1997 and 2006 respectively, GMOs have not yet made it into the major grains and oilseed crops, such as corn and soybeans. The central government’s plans remain shrouded as they seek to forge a path that balances public resistance to GMOs, alongside the pressing need for food self-sufficiency.

Corn-based ethanol is another policy puzzle. After trialing the use of biofuels to reduce vehicular emissions of pollutive contaminants, plans for a nationwide roll-out of E10 ethanol-blended gasoline by 2020 have been delayed. The reason is unclear: it could be that grain self-sufficiency is now overriding environmental health concerns or alternatively, electric vehicle adoption –  not biofuels –  is now the priority. Only with some clarity on these competing policy issues can we get a picture of the longer-term demand for corn.

But probably the biggest mystery of all is the question of just how much corn is actually stored in China’s state and private grain inventories? This has driven CBOT corn and soybean prices over the last few months, as guesstimates from industry analysts seesaw between severe shortages to overflowing bins. There is also little consensus in analyst commentary with corn buying binges explained away as authorities refilling empty state warehouses or China making good on buying commitments from its Phase 1 trade deal with the U.S.

Beijing has publicly made comments cautioning about the risks of large U.S. fiscal stimulus, coupled with the Fed’s and other central banks’ extremely accommodative monetary policy. The leadership will no doubt recall that many commentators blamed the Fed’s QE2 for the last commodity supercycle.   

If we do start to see further steep price increases, another threat is protectionism as countries focus on feeding their domestic populations and insulating themselves from global markets. For example, Russia, the world’s largest exporter of wheat, had implemented grain export taxes early this year, while Ukraine uses export quotas instead. Such acts could potentially create a negative feedback loop, causing importing nations to hoard even more and unnecessarily drive prices even higher, as the cycle repeats itself.