International Grains Summit - PDF Free Download

International Grains Summit May 8, 2015 Milan, Italy By Renault Quach (Guo Jia Hua) Donlinks Grain & Oil Co., Ltd guojh@donlinks.cn www.donlinks.cn

China Agricultural Reform and Its Repercussion over Production, Stock and Import Prospect for 2015-2020 I) China Market - Snap shot II) Historical Review of Government Agricultural Policy III) Current Agricultural Reform and its Repercussion V) Import Prospect for 2015-2020

International Grain Summit 2015 - Milan I) China Market - Snap shot - Major Oilseeds - Vegetable Oils - Protein Meals - Feed Grains II) Current China Market Situation

China Oilseeds Growing Distribution

China Corn Crop Bumper Crop past 5 Years Source: CNGOIC

Soybean - Huge Deficit due to Declining Local Production but Robust Expansion of Crushing Needs KMT 90.000 80.000 Total Crushing Domestic Supply Total Demand '000 Acreas Soybean Acres Bu/acres Bu/Acres 25.000 30 70.000 20.000 25 60.000 50.000 15.000 20 40.000 30.000 10.000 15 10 20.000 10.000 5.000 5 0 03/0404/0505/0606/0707/0808/0909/1010/1111/1212/1313/1414/15 0 0 Source: CNGOIC

Canola Seed Widening Deficit due to Expanding Demand but Stagnant Local Supply KMT 25.000 Total Crushing Domestic Supply Total Demand '000 Acreas Rapeseed Acres Bu/Acres Bu/Acres 20.000 35 20.000 15.000 10.000 5.000 0 18.000 16.000 14.000 12.000 10.000 8.000 6.000 4.000 2.000 0 30 25 20 15 10 5 0 Source:CNGOIC

Groundnut - Steady but Minor Growth 17.500 Crushing (Dom) Domestic Supply Total Demand 9.000 '000 Acreas Groundnut Acres Bu/acres Bu/Acres 14.000 60 17.000 16.500 16.000 15.500 15.000 14.500 14.000 8.000 7.000 6.000 5.000 4.000 3.000 12.000 10.000 8.000 6.000 4.000 50 40 30 20 13.500 2.000 2.000 10 13.000 12.500 08/09 09/10 10/11 11/12 12/13 13/14 14/15 1.000 0 0 08/09 09/10 10/11 11/12 12/13 13/14 14/15 0 Source: CNGOIC

Cotton Seed Stagnant Production 16.000 14.000 12.000 10.000 Crushing (Dom) Domestic Crop Total Demand '000 Acreas Cotton Seed Acres Bu/acres Bu/Acres 16.000 60 14.000 50 12.000 10.000 40 8.000 8.000 30 6.000 6.000 20 4.000 4.000 2.000 2.000 10 0 08/09 09/10 10/11 11/12 12/13 13/14 14/15 0 08/09 09/10 10/11 11/12 12/13 13/14 14/15 0 Source: CNGOIC

SBO Widening Deficit to be Fulfilled by More Import of Soy K Mts 16.000 14.000 12.000 10.000 8.000 6.000 4.000 2.000 0 SBO - Soaring Deficit Supply from Domestic Soy Total Disappearence K Mts 3.000 2.500 2.000 1.500 1.000 500 0 K Mts 80.000 70.000 60.000 50.000 40.000 30.000 20.000 10.000 0 Declining SBO Import B'cause of Soaring Soy Import 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 SBO Import Soybean Import - Ave Growth @29.6% Past 10 years Soy Import 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 Source: CNGOIC

RSO Widening Deficit Being Fulfilled by Higher Import of Canola Seed RSO Import Declined as Canola Seed Import Soared 1.800 K Mts 7.000 RSO - Widening Deficit 1.600 1.400 1.200 1.000 RSO Import 6.000 800 600 5.000 4.000 3.000 400 200 0 03/0404/0505/0606/0707/0808/0909/1010/1111/1212/1313/1414/15 2.000 6.000 Canola Import - Soaring Growth @141% past 10 years 1.000 0 5.000 4.000 Canola Import 3.000 Supply from Domestic Rapeseed Total Disappearence 2.000 1.000 0 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 Source: CNGOIC

Palm Olein Entirely Import with Steady Ave. Growth @7.8% past 10 Years '000 Mts 7.000 K Mts 7.000 6.000 5.000 5.000 4.000 3.000 2.000 1.000 3.000 0 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 Import Domestic Supply Domestic Demand Source: CNGOIC

SFO Deficit Widening due to Expanding Demand from High Income Earner SFO from Domestic Crop Total SFO Disappearance SFO Import Growth - Ave 65% past 11 Years 1.200 600 1.000 500 SFO Import 800 400 600 300 400 200 200 100 0 08/09 09/10 10/11 11/12 12/13 13/14 14/15 03/04 04/05 05/06 06/07 07/08 0 08/0909/1010/1111/1212/1313/1414/15 03/0404/0505/0606/0707/08 Source: USDA

SFO Import Impressive Growth K Mt 2013-92% of SFO from Ukraine Source: China Custom

Widening Deficit of Edible Oils being Fulfilled by Soaring Import of Oilseeds & Vegoils 12,0 10,0 K Mts 35.000 Widening Deficit from Strong Consumption 8,0 6,0 4,0 30.000 25.000 20.000 15.000 2,0 0,0 08/0909/1010/1111/1212/1313/1414/15 03/0404/0505/0606/0707/08 Palm Oil Soybean Oil Rape Oil Sunflower Oil Coconut Oil Peanut Oil Palm Kernel Oil 10.000 5.000 90.000 80.000 70.000 Canola Seed Soybean 0 60.000 50.000 40.000 Oil Supply from Dom. Oilseeds Domestic Total Oil Demand 30.000 20.000 10.000 0 Source: CNGOIC

China Edible Oils Turns to Surplus After Soaring Import of Oilseeds and Vegoils 35.000 30.000 Total Supply Total Disappearence 25.000 20.000 15.000 10.000 5.000 0 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15

Widening SBM & RSM Deficit K Mts 60.000 SBM Consumption - Ave Growth @15.2% Vs Supply from Domestic Soy @-6.2% past 11 Years K Mts 12.000 RSM - Demand Ave Growth @+6.1% Vs Supply from Domestic Rapeseed @+2.6% past 11 Years 50.000 10.000 40.000 8.000 30.000 6.000 20.000 4.000 10.000 2.000 0 0 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 Supply from Domestic Soy Total Demand Supply from Dom. Rapeseed Total Demand Source: CNGOIC

CSM & GNM Well Balanced but Gradually Expanding K Mts 5.500 CSM - Well Balanced K Mts 3.500 GNM - Well Balanced 5.000 4.500 3.000 4.000 3.500 2.500 3.000 2.500 2.000 2.000 1.500 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 1.500 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 Supply from Domestic Soy Total disapprearence Supply from Domestic Soy Total disapprearence Source: CNGOIC

Soaring Meals Deficit Robust Growth Consumption of Meats & Feed Production K Mts SBM+RSM+GNM+CSM - Soaring Deficit 80.000 70.000 60.000 50.000 40.000 30.000 20.000 10.000 0 Suppy From Domestic Source Total Disappearence Source: China Statistics Years Book, China Feed Association & CNGOIC

Soaring Meals Deficit Only Solution => Import K Mts Soybean - Ave Grwoth @28.5% Past 10 Years K Mts Canola seed - Soaring Grwoth @95.3% Past 10 Years 80.000 6.000 70.000 5.000 60.000 50.000 4.000 40.000 3.000 30.000 2.000 20.000 10.000 1.000 0 0 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 Source: China Custom

Groundnut + Cotton Seed Import - Supplementary KMT Groundnut Import KMT Cotton Seed Import 160 450 140 120 100 80 Average growth rate=226% 400 350 300 250 200 60 150 40 100 20 50 0 08/09 09/10 10/11 11/12 12/13 13/14 0 08/09 09/10 10/11 11/12 12/13 13/14 Source: China Custom

Expanding Local Corn Supply by Expanding Planting Area and Improving Yield 240 Domestic Crop Total Disappearence K Acres 100.000 Corn Acres Bu/acre Bu/Acre 120 220 90.000 80.000 110 200 70.000 100 180 60.000 50.000 90 160 40.000 80 140 30.000 70 120 20.000 10.000 60 100 0 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 50 Source: CNGOIC

Corn Import A Trend or Temporary? Mln Mts 50 China Corn - Stock Re-building as from 06/07 240 220 Domestic Crop Total Disappearence 40 30 20 Net Changes to Stock 200 10 180 0 (10) 160 (20) 140 Mln Mts 10 China Turns to Net Importer as from 2009 120 5 100 0-5 -10-15 Source: CNGOIC -20 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Mln Mts Corn Import to China be Continued? 10 5 0-5 -10-15 -20 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 250 200 150 100 50 0 China Turns to Net Importer as from 2009 Industrial Use Feed Use Total Demand Total Supply Source:CNGOIC

China Agricultural Reform and Its Repercussion to Production, Stock and Import Prospect for 2015-2020 I) China Market - Snap shot II) Historical Review of Government Agricultural Policy III) Current Agricultural Reform and its Repercussion V) Import Prospect for 2015-2020

Government Agricultural Policy Soybean 1990s:Grain Purchases & Sales by Central Planning 2002:Subsidy to improve quality of grains; Areas covered 24.7mln Acres;,Subsidy Rmb 150-200/Acrea 2004: AgriTax down from 7% to 4%; Ave subsidy was rmb3.15/acre 2014: Target Price Policy. Direct subsidy basis target & market prices. No subsidy if Mktprice higher than target price. Target price for soy = rmb4800/mt 2008: Adopt Temporary Reserve Policy after food crisis; Minimum Procurement price; Stored by Gov t& Resell to market by auction if needed. Year temporary purchase price 2008 3700 RMB/ton 2009 3740 RMB/ton 2010 3800 RMB/ton 2011 4000 RMB/ton 2012-2014 2014 4600 RMB/ton 2007: Increased subsidy to improve soy quality; Areas covered expanded to 98.8 mln Acres, Subsidy was rmb35/acre.

Impact of Gov t Agri Policy on Soybean Production Gov t subsidy Procurement for Reserve

Soybean Production Soared in 2004 & 2008 Resulting from Gov t Policy Agricultural Tax Reduction Procurement for Reserve

Impact of Gov t Agri Policy on Soybean Stock Procurement for Reserve Gov t subsidy

Impact of Gov t Agri Policy on Soybean Import 80.000 Soybean Import - Ave Growth @30.6% past 11 years 70.000 60.000 Soybean 50.000 40.000 30.000 20.000 10.000 0 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15

Government Agricultural Policy Corn 2000: Free Agri tax. Subsidy to seed farmers, hibrideseeds and Agri equipment. 2002: Cancel export subsidy. Adopt import quota system (Corn 7.2 mln mts) 2008: Adopt Revolving Temporary Reserve Program 2015: Linking corn import quota with reserve corn purchases by auction 2013-2014:Only Sinograinbeing authorized to procure corn from farmers for Reserve 2013-2014 :Record corn procurement for Revolving Temporary Reserve program MIR 162 was approved by GAQSIQ on Dec 17, 2014. SinoGrain monopolised corn procurement for Reserve Model: Sinograin --- regional Reserve Warehouses

Corn Production Soared in 2004 & 2008 Resulting from Government Policy

Corn Procurement Soared in 2008 2014 & 2015 when Support Price above Market Price

Impact of Gov t Agri Policy on Corn Stock

Corn Stock in Reserve at Peak by end of 2014 / 2015

Impact of Gov t Agri Policy on Corn Import

Positive Import Margin Leaded to Corn Import

Planting Area Remained Gradual Expansion after Agri Tax Reduction in 2004

Deteriorating Soybean Return Explained why China Soybean production Kept on Declining over the Years

2015 Gov t Agricultural Support Policy Major Government Policy on Agriculture Sector: Strengthen Farm Land Transferable Program which allows farm lands to be bought, sold and leased. The Government encourages farmers to form Co-op to handle agricultural crop marketing. The Government encourages large scale farming making use of mechanical equipments to boost crop production. Replaced Corn Procurement for Reserve Program by Direct Subsidy to Farmers of Price Difference of Target Price Vs Market Price Big Repercussion on Yield in Years Ahead. Linking Corn Import Quota Allocation to Reserve Corn Auction to lessen current burden of deteriorating quality of corn in reserve. Re-application of 13% Export Tax Rebate to corn processing Plants to boost local corn usage and reduce mountaining corn stock.

2015 Gov t Agricultural Policy Impact on soybean Given better corn return to farmers than soybean farmers, do not expect planting area of Soybean to be increased impressively. Expect improvement of soybean yield because of more application of mechanical equipments and large scale farming. However, production is not expected to be increased by such a degree to override expansion demand for protein meals and reversal of current soybean import in years ahead. Uncertain over production increase by replacing Revolving Temporary Reserve Program by Direct Subsidy to Farmers for Difference of Target Price Vs Market Price Expect soybean import to be at least 80 mln mts by 2020.

Projected Domestic Soybean Import Source: USDA &Own Estimate

Projected Meat & Feed Production Source: China Feed Industry Association & China Statistical Year book

1 Higher Meat Consumption Due to Increase of Population Size

2 Higher Meat Consumption Due to Higher Urbanization Rate

Grains & Meats Consumption Per Capita Farms Vs City

3 Higher Meat Consumption Due to Higher GDP Per Capita or Improvement of Living Source: USDA

4 National Policy - in favor of Grains Production instead of Oilseeds

Projected Domestic Soybean Deficit Source: USDA &Own Estimate

Projected Domestic Soybean Import Source: USDA &Own Estimate

Widening Deficit of Domestic Supply of Edible Oils

1 Higher Meat Consumption Due to Increase of Population Size

2 Higher Meat Consumption Due to Higher Urbanization Rate

3 Higher Edible Oils Consumption Due to Higher GDP Per Capita

2015 Gov t Agricultural Policy Impact on Corn Expect domestic corn production to be increased by an average of 4.5% in years ahead resulting from both expansion of planting area (1%) and yield (3%). Improvement of corn yield comes from more application of mechanical equipments and large scale farming. Domestic production will exceed expanding total disappearance with corn stock to be accumulated in years ahead. However, still see corn import to China because of premium of local corn price to imported corn. Annual import quantity will be limited by the import quota allocated to non-stated owned companies (2.88 mln mts). Expect corn import to be around 2.88 mln mts by during 2016-2020.

Expanding Local Corn Supply in Years Ahead by Planting Area 1% & Yield 3% 300,0 China Corn Crop - Growth @ Ave 4.5% coming 5 Years K Acres 120.000 100.000 80.000 China Corn - Planting Area @Ave Growth 1% coming 5 years Area in '000 Acres 250,0 60.000 200,0 40.000 20.000 150,0 0 100,0 50,0 0,0 Source: CNGOIC Domestic Crop China Corn Yield - Grow 2 Ave 3% coming 5 Years Bu/Acre Due to "Land Transferable" Program 110,0 105,0 100,0 95,0 90,0 85,0 Yield Bu/acre 80,0 75,0 70,0

Corn Import < 3 mln tons in Years Ahead Mln Mts Mln Mts 50 China Corn - Turns to Surplus as from 06/07 due to Gov't Policy 280 260 240 220 200 180 160 140 Domestic Crop Total Disappearence 40 30 20 10 0 (10) (20) Mln Mts 10 01/02 02/03 Net Changes to Stock 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16 16/17 17/18 18/19 China Remains as Net Importers in Years ahead Because of More Expensive Local Corn 19/20 120 5 100 0-5 -10-15 China Corn Net Exports(MMT) -20 Source: CNGOIC

Positive Import Margin Induced Corn Import

Deteriorating Soybean Return Explained why China Soybean production Kept on Declining over the Years

Expected Repercussion on Production, Stock and Import Prospect 1) Soybean: * Expect local soybean production on defensive in years ahead because of lower return to farmers and local non-gmo variety soybean mainly for edible purposes. * Effect of substitution of Revolving Temporary Reserve Procurement Program by Direct Subsidy to Farmers of Price Difference of Target price Vs Market Price Program is uncertain to production prospect as it is at preliminary stage. * Expect soybean import to be further increased in years ahead because of room for expansion of meat consumption as a result of urbanization, economic and population growth. * Current Farm Land Transferable Program is not expected to reverse expanding soybean import prospect. 2) Corn: * Current Farm Land Transferable Program, encouragement of large scale farming and more application of mechanical equipment are expected to improve corn yield and hence production in years ahead. * Expect local corn production to exceed total disappearance and stock to increase in years ahead. However, corn import is expected to be continued but limited by import quota. * Effect of substitution of Revolving Temporary Reserve Procurement Program by Direct Subsidy to Farmers of Difference of Target Price Vs Market Price Program is uncertain to production prospect as it is at preliminary stage. * Instead, we will see other feed grain import such as feed barley, sorghum to be increased as a substitute to corn use in feed sector.

Reference Information / Import Data

Source: China Statistical Yearbook

Soybean in China

Rapeseed in China

Groundnut in China

Cotton in China

Corn in China Source: CNGOIC

Corn Deficit over Coastal Region Deficit Surplus North East 45298 South west 356 Bo Hai 13977 Eastern China 11031 Source: CNGOIC South 28650

South China - The Major Wheat Import Area

000 mts Soybean Import Brazil Superseded USA as Major Supplying Origin Source: China Custom

KMT 6.000 Canola Import - Soaring Growth @95% past 11 years 5.000 4.000 Canola Import 3.000 2.000 1.000 0 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15

Explosive Import of oilseeds and Oils resulting from Big Deficit KMT KMT 90.000 80.000 70.000 Soybean Canola Seed 12.000 10.000 PO SBO RSO GNO SFO 60.000 8.000 50.000 40.000 6.000 30.000 4.000 20.000 10.000 2.000 0 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 0 Source: CNGOIC

Corn Import to China to become Regular Activity in Years Ahead 10 China Turns to Net Importer as from 2009 5 0-5 -10-15 -20 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

KMT

75% of Crushing Capacity is located along Coastal Regions

Top 13 Crushers Account for 60% of National Crushing Capacity Source: Own Estimate

China Feed Production Remained Stagnant in 2014 & 2015

72% of Feed Production Capacity Being Distributed Along Coastal Regions

Source: China Statistical Yearbook Meat Production by Type

62% of Meat Production Being Distributed Along the Coastal Regions

Production Capacity Along Coastal Regions Meat = 62% Feed = 72% Crushing = 75%

China 2015 Import Quota Commodity Stated-Owned Non State-Owned Total K tons % K tons % K tons % Corn 4,320 60% 2,880 40% 7,200 100% Wheat 8,672 90% 964 10% 9,636 100% Rice 2,660 50% 2,660 50% 5,320 100% Cotton 295 33% 599 67% 894 100% Source: China Development & Reform Council

Agri Commodities Allowable for Import to China by GAQSIQ Corn Barley soybean rapeseed wheat Ukraine USA Canada Australia Brazil Argentina Source: GAQSIQ

Thank You DonlinksGrain & Oil Co., Ltd Renault Quach guojh@donlinks.cn www.donlinks.cn