2016 China Dry Bean Historical production And Estimated planting intentions Analysis

Transcription

1 2016 China Dry Bean Historical production And Estimated planting intentions Analysis Performed by Fairman International Business Consulting 1 of 10 P a g e

2 I. EXECUTIVE SUMMARY A. Overall Bean Planting 1. Extreme uncertainty with potentially important decisions not yet made Corn prices and corn policies for 2016 will be clarified over the next month. We anticipate that there could be significant change to current planting intentions if policy or price changes materialize in the next month. 2. Very low compared to historical values Bean planting in China in 2016 will likely be similar to From a historical perspective this puts the planting at less than half of the historical norm. 3. Variety specific considerations Some specific varieties such as DRK are likely to decrease significantly while other varieties such as LSKB and Adzuki bean stand to increase significantly. B. Important Considerations 1. Corn price guarantees disappearing So far the details of farmer support packages have not been released. Historically incentives have been tied to a specific crop. If incentives are now applied equally to all crops this could significantly increase bean planting this year. If incentives are specific 2. White and colored bean prices have lost significant ground to mung bean and adzuki bean over the last 3 years Farmers in China mostly look at current prices and stock on hand to decide their planting. Currently it appears that they will preferentially plant mung beans and adzuki beans. Relatively large stocks of mung beans make the adzuki beans slightly preferred over the mung beans. C. Specific variety trends We go through analysis for each bean variety and give confidence intervals. A summary is as follows: DRK planting down significantly compared to 2015 Black bean planting about the same as 2015 but very low compared to historical norm Speckled bean planting up significantly compared to 2015 but very low compared to historical norm White bean planting about the same as 2015 and consistent with historical norm Mung bean planting slightly up from 2015 Adzuki bean planting up significantly compared to 2015 D. Data Sources Data presented in this document is based on a combination of the following: Independent consultants in bean growing regions Reports from bean seed sellers in Heilongjiang Province Chinese exporters Chinese farmers Historical customs data Industry experts from various bean growing regions 2 of 10 P a g e

3 II. CONTENTS I. Executive Summary... 2 A. Overall Bean Planting Extreme uncertainty with potentially important decisions not yet made Very low compared to historical values Variety specific considerations... 2 B. Important Considerations Corn price guarantees disappearing White and colored bean prices have lost significant ground to mung bean and adzuki bean over the last 3 years 2 C. Specific variety trends... 2 D. Data Sources... 2 II. Contents... 3 III. China Dry Bean Planting Projection Overview... 4 A. Production and Export data... 4 B. Overall China Dry Bean Market Situation Current events in the corn markets Current events in other bean markets Other Historical Considerations... 6 IV. Dark Red Kidney (DRK)... 7 A Planting Estimate... 7 B. History of China DRK Production... 7 V. Black Beans... 8 A Planting Estimate... 8 B. Overview of China black bean history... 8 VI. Speckled Beans... 9 A Planting Estimate... 9 B. Overview of China speckled bean history... 9 VII. White Beans A Planting Estimate B. Overview of white bean history of 10 P a g e

4 III. CHINA DRY BEAN PLANTING PROJECTION OVERVIEW 15 April 2016 A. Production and Export data The primary concrete data source we have is the history of actual export quantities from China. In order to get a preliminary estimate of each bean variety we try to put our range of expectations in a historical perspective. Around 2010 there was an adjustment to economic policy that eliminated a tax benefit for exporters of agricultural products. This predictably reduced planting incentives for dry beans which are primarily for export. In 2013 farmers had beans in the fields that would have produced around 600,000 tons if it were not for a flooding disaster in Heilongjiang Province. In 2014 there was somewhat of a perfect storm for the Chinese bean farmer o Farmers planted a lot of acreage based on high prices of beans in o Corn prices in the west collapsed but Chinese corn prices held firm. o International bean prices followed international corn prices. o Chinese farmers lost confidence in their ability to make money planting beans. In 2015 overall bean production was extremely low with significant carryover from In 2016 there are still significant stocks of some bean varieties unsold and farmer confidence in the bean market is rather low. It seems likely that 2016 will be a relatively low production year compared to historical norms. Tentatively we are predicting a slight overall increase based on corn price jitters related to market changes. China Dry Bean Production History 1,000,000 MT 800,000 MT 600,000 MT 400,000 MT 200,000 MT 0 MT GY 2016 GY 2015 GY 2014 GY 2013 GY 2012 GY 2011 GY 2010 GY 2009 GY 2008 GY 2007 GY 2006 Production Production Estimate Carryover Actual Exports Export Estimate Domestic Use 4 of 10 P a g e

5 15 April 2016 B. Overall China Dry Bean Market Situation 1. Current events in the corn markets Over the last year we have seen economic policy changes that are bringing the corn prices in China in line with the world market for corn. While this policy change is taking place, it is not having an instantaneous effect on the China corn prices. In 2013, China corn prices were within 10% of USA corn prices. In 2014, China corn prices were 80% higher than USA corn prices. In 2015, China corn prices were still 80% higher than USA corn prices despite a significant decrease. As of May 2016, China corn prices at Dalian Commodity Exchange are 60% higher than USA corn prices. There is still A VERY SIGNIFICANT STOCKPILE of corn purchased over the last three years. In order for the corn price to drop quickly somebody will be forced to accept a significant loss on that stockpile. $400/MT $350/MT $300/MT $250/MT $200/MT $150/MT $100/MT $50/MT China vs North America Corn Prices China Corn Price (Left Axis) North America Corn Price (Left Axis) Median Dry Bean Price (Right Axis) $1,800 /MT $1,600 /MT $1,400 /MT $1,200 /MT $1,000 /MT $800 /MT $600 /MT $400 /MT $200 /MT $0/MT $0 /MT of 10 P a g e

6 2. Current events in other bean markets $2,500 Chinese farmers are not highly sophisticated people with a global view. As a rule the Chinese farmer is simply watching real time price trends to inform them about what type of bean is best to plant. There is significant domestic consumption of mung beans and adzuki beans. The fact that China has an important contribution to the worldwide consumption of these bean varieties has helped to stabilize these prices over the last 3 years. Based on this chart alone it seems very likely that Chinese farmers will focus their bean acreage on mung beans and adzuki beans in China Dry Bean Price History $2,000 $1,500 $1,000 $500 $0 Q Q Q Q Q Q Q Q Q Q Q Green Mung Beans (>3.8 mm) Black Kidney Beans, Color Sorted Japanese White Kidney Beans Cranberry beans Adzuki Beans, >4.5 mm, HPS Light Speckled Kidney, Color Sorted Dark Red Kidney Beans 3. Other Historical Considerations Farmers in China have learned to trust that somehow if they grow corn they can make a reasonable profit. Up until now they have never had to hold on to their corn in order to break even. For the last decade the farmers have always been able to sell their corn at harvest time for a reasonable profit. Even with the changes in the fixed price guarantee most farmers still intuitively believe that corn is a safe investment compared to beans. Currently China is a net importer of mung beans. There is currently a significant stockpile of mung beans produced domestically and there are also sources available for import. Where farmers have experience with adzuki beans it is likely farmers will plant adzuki beans. One of our independent consultants suggested that this year the adzuki crop might be extremely large with many farmers implementing a knee jerk reaction. 6 of 10 P a g e

7 IV. DARK RED KIDNEY (DRK) A Planting Estimate There is a high degree of uncertainty about DRK planting in We have the following facts to go on: As of planting time, farmers are still holding half of their Dark Red Kidney beans from last year DRK purchase offers are less than 1/3 the price farmers received just two years ago News from seed sellers indicates Heilongjiang will not plant any DRK this year About half of the regions where DRK is grown also produces Adzuki beans Our preliminary conclusion is that 2016 DRK planting will produce a yield between 35,000 and 53,000 tons. Our median expectation is 44,000 tons. In May of 2016 we will take a trip to Heilongjiang and Shanxi Provinces in hopes of making this confidence interval much smaller. B. History of China DRK Production The historical data from 2006 to 2011 is estimated. Actual historical data can be purchased and processed for $4,000 per year back through GY 2008 if the baseline facts are needed. In 2013 farmers and exporters made a good profit with high production and high prices. In 2014 at the time that planting decisions were being made prices were still holding pretty well. The 2015 production still has over 50% unsold. Sales have fallen behind recent years. 100,000 MT 90,000 MT 80,000 MT 70,000 MT 60,000 MT 50,000 MT 40,000 MT 30,000 MT 20,000 MT 10,000 MT 0 MT GY 2006 China DRK Production History Estimated based on total trade and destination countries. GY 2007 GY 2008 GY 2009 GY 2010 GY 2011 GY 2012 GY 2013 GY 2014 GY 2015 GY 2016 Production Production Estimate Carryover Actual Exports Export Estimate Domestic Use 7 of 10 P a g e

8 V. BLACK BEANS A Planting Estimate Black bean planting in 2016 is sure to be a small crop compared to historical production: As of planting time, farmers are still holding significant black bean stock from production was about 20% of typical production just a few years ago. Brazilian demand is likely to increase this year but this news is not likely to make it to farmers in a way that will change their planting intentions. Our preliminary conclusion is that 2016 black bean planting will produce a yield between 40,000 and 80,000 tons. This wide range represents a 10% confidence error on the production capabilities a few years ago. Our best estimate for 2015 is 50,000 tons. In May of 2016 we will take a trip to Heilongjiang and Inner Mongolia to observe the actual planting situation and we will be able to improve this confidence interval. B. Overview of China black bean history In 2013 total planting would have produced over 250,000 tons but more than half of the black beans were destroyed in the fields by a flooding disaster. In 2014 at the time that planting decisions were being made prices were still 60% higher than current prices. There is still stock from 2014 and 2015 remaining unsold. For the last 6 months sales have been steady at 5,000 tons per month to Central and South America. 500,000 MT China Black Bean Production History Estimated based on total trade and destination countries. 400,000 MT 300,000 MT 200,000 MT 100,000 MT 0 MT GY 2016 GY 2015 GY 2014 GY 2013 GY 2012 GY 2011 GY 2010 GY 2009 GY 2008 GY 2007 GY 2006 Production Production Estimate Carryover Actual Exports Export Estimate Domestic Use 8 of 10 P a g e

9 VI. SPECKLED BEANS A Planting Estimate This category includes light speckled kidney beans and cranberry beans. In a historical perspective 2016 will be a small crop of light speckled kidney beans but it will be slightly higher than the total crop of As of planting time, 2014 stocks are all sold and 2015 stock is selling fast enough to be depleted by harvest time production was about 20% of typical production just a few years ago. Our preliminary conclusion is that 2016 speckled bean planting will produce a yield between 70,000 and 140,000 tons. This wide range represents a 20% confidence error on the total production capacity. Our best estimate for 2015 is 120,000 tons. This estimate represents the mid-point between the last two years total production. In May of 2016 we will take a trip to Heilongjiang and Inner Mongolia to observe the actual planting situation and we will be able to improve this confidence interval. B. Overview of China speckled bean history In 2013 total planting would have produced over 225,000 tons but more than half of the speckled beans were destroyed in the fields by a flooding disaster. In 2014 at the time that planting decisions were being made prices were still 60% higher than current prices. In the last 12 months 144,000 tons have been shipped with the largest customers being India and South Africa. South Africa is currently emerging from a historic drought that has impacted their bean production. 500,000 MT China Speckled Bean Production History Estimated based on total trade and destination countries. 400,000 MT 300,000 MT 200,000 MT 100,000 MT 0 MT GY 2016 GY 2015 GY 2014 GY 2013 GY 2012 GY 2011 GY 2010 GY 2009 GY 2008 GY 2007 GY 2006 Production Production Estimate Carryover Actual Exports Export Estimate Domestic Use 9 of 10 P a g e

10 VII. WHITE BEANS A Planting Estimate This category includes a wide variety of white beans as well as lima beans. A growing domestic market makes white beans a lower risk solution for farmers planting was the lowest planting in history. Our preliminary conclusion is that 2016 white bean planting will be slightly up from the 2015 historical low. We put a production estimate between 55,000 and 80,000 with our best guess at 65,000 tons. In May of 2016 we will take a trip to Heilongjiang and Inner Mongolia to observe the actual planting situation and we will be able to improve this confidence interval. B. Overview of white bean history In 2013 total planting would have produced over 100,000 tons but more than half of the white beans were destroyed in the fields by a flooding disaster. In 2014 at the time planting decisions were being made prices were still double current prices. Domestic consumption of lima beans and other white beans has increased significantly over the last five years. 160,000 MT 140,000 MT China White Bean Production History Estimated based on total trade and destination countries. 120,000 MT 100,000 MT 80,000 MT 60,000 MT 40,000 MT 20,000 MT 0 MT GY 2016 GY 2015 GY 2014 GY 2013 GY 2012 GY 2011 GY 2010 GY 2009 GY 2008 GY 2007 GY 2006 Production Production Estimate Carryover Actual Exports Export Estimate Domestic Use 10 of 10 P a g e