What is important in China’s No.1 Document for agriculture?

China has released its annual blueprint for the country’s agriculture sector late Tuesday offering guidance to farmers, trading houses, and processors in a year that is bound to be overshadowed by global inflation, geopolitical uncertainty, and unpredictable weather conditions.

The country is expected to boost domestic soybean output while maintaining other grain output with limited acreage. It also aims to keep its pork output steady amid low pork price, poor margins for breeders, and a changing consumer diet.

Maintaining current acreage and output

China will aim to maintain its target of 650 million tons of grains and oilseeds output this year. This has always been the top emphasis in this annual document.

It normally implies that the country will continue to focus on stabilizing productions of ration grains including rice, wheat and corn that accounts for more than 90% of China’s annual crop output.

In 2020, China’s total crop output hit more than 669 million tons, of which 91% were rice, wheat and corn.

Hence, using the majority of China’s agrarian land for these three grains will remain as the main target. As for soybeans, the variation in acreage might be minimal.

Boosting soybean and oilseed production

Soybean output typically makes up less than 5% of China’s crop output each year. The volume hit a new record of 19.6 million tons in 2020 but fell back to 16.4 million tons last year.

Despite a consistent growth of soybean production in China since 2013, domestic production only account for less than 20% of total supply each year as the country imports 100 million tons of soybeans from abroad.

China will increase subsidies to farmers to encourage more soybean planting in 2022. This usually comes at the expense of less corn planting as most of soybean and corn planting areas in the country overlaps.

Chinese farmers switch between planting soybeans and corn depending on the size of government subsidies. However, it is unlikely to play a major role of solving China’s dependence on soybean imports in the short term.

Stabilizing the hog and pork sector

Weak pork prices have been a key element for China to fend off its inflationary pressure. Even though most raw material costs have spiked since last year, the country’s monthly CPI has only strengthened mildly.

Particularly in the food sector, low pork price has significantly offset rising vegetable, fruit and other meat prices.

But analysts are expecting pork prices in China to start entering a bullish trajectory in the second of 2022.

This a positive signal for hog producers, feed processors and oilseed crushers in China, as higher pork price will boost hog-breeding margins and increase breeders’ willingness to use soymeal-based feed.

However, higher pork price could also aggravate Chinas’ inflationary pressure.

Chinese government has urged the hog sector to maintain the pork annual production at 55 million tons.

Tightening control of corn-based ethanol processing

China will likely cut back on corn consumption in ethanol production to redirect more corn supply to the feed industry as corn prices in China rose sharply in 2021 forcing farmers to substitute with wheat.

Corn-based ethanol processing sector in China has grown rapidly in recent years amid a push towards low carbon emissions and a wider adoption of biofuel vehicles.

But China’s has also rapidly expanded its electric vehicle fleet reducing the need for wider adoption of biofuel vehicles.

Hence, China will likely divert more corn supply to the feed industry to ease high prices.

More subsidies and financing support for farmers

Farmers’ subsidies will be raised to stabilize outputs of key grains and oilseeds including wheat, corn and soybeans. These will include increasing the minimum price level of wheat auctions.

Soybean subsidies are expected to be higher than corn this year as China looks to boost domestic soybean output as the volume slumped to a three-year low in 2021.

The Ministry of Agriculture and Rural Affairs are also pushing for mixed planting of corn and soybean in Bohai Bay area, as well as south-western and north-western China.