VZCZCXRO3714
PP RUEHCN RUEHGH RUEHVC
DE RUEHSH #0138/01 2730644
ZNY CCCCC ZZH
P 290644Z SEP 08
FM AMCONSUL SHENYANG
TO RUEHC/SECSTATE WASHDC PRIORITY 8510
INFO RUEHOO/CHINA POSTS COLLECTIVE PRIORITY
RUEAIIA/CIA WASHDC PRIORITY 0147
RUEATRS/DEPT OF TREASURY WASH DC PRIORITY 0227
RHEHAAA/NSC WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY 0817

C O N F I D E N T I A L SECTION 01 OF 02 SHENYANG 000138 
 
SIPDIS 
 
DEPT PLEASE PASS TO DEPARTMENT OF AGRICULTURE 
 
E.O. 12958: DECL: 09/29/2018 
TAGS: CH EAGR ECON PREL EIND EINT ELAB ENRG ETRD PGOV
SUBJECT: SUBJECT: CHINA,S SUCCOTASH SECURITY-PLENTY OF CORN 
(INCLUDING FOR EXPORTS TO NORTH KOREA) BUT NOT ENOUGH BEANS 
 
REF: A. SHENYANG 000014 
     ¶B. SHENYANG 000251 
     ¶C. BEIJING 009696 
     ¶D. STATE 99968 
 
Classified By: CONSUL GENERAL STEPHEN B. WICKMAN, 
Reasons 1.4 B and D 
 
 ¶1. (C) Summary.  Jilin Grain, a key enterprise in China,s 
drive for grain security, sees continued price pressure in 
soy beans and oil.  Jilin and other corporate entities in 
China are taking major steps to increase the amount of 
China-controlled soy plantation both in China and around the 
world.  The corn picture for China is much brighter according 
to Jilin Grain, as improved technology and good weather more 
than compensate for a decrease in corn plantation.  China 
will loosen export controls on corn to service demand in 
Taiwan and North Korea, but otherwise will remain a 
non-exporter of grain.  End Summary. 
 
¶2. (C) Vice-General Manager Feng Jilong of Jilin Grain Group, 
China,s largest grain company, told Econoff Septermber 17 
that while China faced some pricing pressure in its domestic 
grain market -- largely due to increased costs for seed and 
fertilizer and also becauseof rising demand -- China is 
self-sufficient in grains and will not be overly influenced 
by the recent high global commodity prices.  Feng pointed out 
that international spot market prices for rice are three 
times China's domestic price, while corn and wheat are nearly 
twice as high in the ternational market.  Only in soy beans 
and soy oil do global commodity prices impact China's 
domestic market, Fend stressed.  Unlike Western definitions, 
which class soy as an oil seed, China,s concept of grain 
includes soy beans and soy oil as an integral component. 
According to Feng, soy is a key element in China,s grain 
security strategy. 
 
¶3. (C) Jilin Grain was the major purchaser for this summer,s 
widely reported USD 450 million purchase of soy beans in the 
U.S. market and, according to Feng, is likely to be the lead 
agency for China,s participation in international grain 
markets.  In June, Jilin Grain also dispatched personnel to 
Zambia to lease major amounts of arable land for soybean 
production.  However, Feng said plans to set up a crushing 
facility in Johannesburg were scrapped due to political 
instability in South Africa.  (Jilin staff had the misfortune 
to visit South Africa during this summer,s outbreak of 
violence toward foreigners.) The African crop will be traded 
in the regional market with the end goal of freeing up supply 
elsewhere for China,s consumption. 
 
¶4. (C) Additionally, private soy farmers in Heilongjiang 
Province have negotiated leases for large tracts of land in 
Russia,s Amur Province, according to Feng.  These areas will 
be farmed by Chinese workers and the harvest will be shipped 
to China.  Feng added that although current measures have 
been adequate to ensure the supply of soy beans, major 
problems remain in getting the beans crushed and the oil to 
market.  With most of the crushing in China controlled by 
western firms, it is impossible to get them to deliver oil to 
China,s market at prices below the world market.  Feng 
explained that major state-owned producers, including Jilin 
Grain,s processing arm, would be forced to absorb losses in 
the cooking oil market in order to maintain price stability. 
He said that China would make a major push to increase the 
crushing capacity of state-owned firms.  According to Feng, 
central government officials are anxious to avoid shortages 
of cooking oil similar to the shortages of diesel fuel 
earlier this year without raising prices.  The only way to do 
this is to have state-owned firms absorb the losses, he made 
clear.  (Feng noted that unlike the petroleum producers, 
which had resisted operating at a loss because they had 
listed on the Hong Kong and Shanghai markets, Jilin Grain was 
still unlisted and had to absorb the loss.) 
 
¶5. (C) With regard to corn and rice, Feng told Econoff that 
the dilemma for China is to balance the need to control 
prices in the face of rising domestic demand with the need to 
provide farmers sufficient return on their investment.  The 
spring 2008 central government increase in the rice price was 
not enough to ensure adequate rice production according to 
Feng.  Thus, the government this year provided free equipment 
such as tillers and small tractors to marginal rice farming 
operations throughout China. 
 
¶6. (C) Feng said corn was in an interesting position this 
 
SHENYANG 00000138  002 OF 002 
 
 
year.  Overall corn acreage decreased by a full percentage 
point from last year's levels, due to a government pricing 
policy that encouraged planting of soy at the expense of 
corn.  However, better planting techniques coupled with 
exceptionally good weather led to a bumper corn crop.  Jilin 
Grain estimates that production in Jilin Province will be up 
more than ten percent, while Heilongjiang will slightly 
exceed last year,s levels with substantially less acreage 
planted.  Northeastern China is expecting a total yield of 
160 million metric tons of corn this year. 
 
¶7. (C) The government will take a very active approach to 
managing the corn market as a key to its grain security 
strategy, Feng continued.  First the government will buy and 
store as much corn as is necessary to maintain domestic price 
floors and ensure that farmers have an incentive to plant. 
Secondly, China will strictly limit the amount of corn 
devoted to industrial use, storing part of the saved grain 
and directing the rest for use in animal feed.  China plans 
to price feed corn at levels necessary to keep pig farmers 
active.  Feng said the government wants to prevent last years 
radical drop in pork production, which eventually led to 
shortages and major price increases in the retail pork 
market.  As long as wheat prices stay relatively low, Feng 
explained, wheat would be the preferred feed for the poultry 
industry.  However, if wheat prices jump, central authorities 
would release corn for the poultry market as well. 
 
¶8. (C) China maintained a stock of about 6.7 million tons of 
corn during the previous year, according to Feng, an amount 
that will increase to at least 10 million tons.  This would 
make government stores the third largest demand input, after 
livestock feed and industrial use, but surpass corn for human 
consumption.  China will use rampant industrial demand as 
another market control mechanism by permitting more 
industrial use if an abundant harvest puts too much downward 
pressure on prices. 
 
¶9. (C) Feng also noted that China plans to maintain most of 
its corn stock in Northern China, with twenty to thirty 
percent in Beijing, and roughly fifteen percent in Dalian, 
Jinzhou, and Bayuquan respectively.  Shekou and Zhangzhou in 
the South will store the remainder. 
 
¶10. (C) While China has generally stuck to its self-imposed 
elimination of exports (ref B), the bumper corn crop will 
allow substantial modification to that policy.  According to 
Feng, large quantities of corn will be exported over the next 
year, but only to Taiwan and North Korea.  Shipments to 
Taiwan are not really exports, Feng explained.  He went on to 
say the shipments to North Korea will likely be in the form 
of humanitarian assistance, although the press will report 
these as sales.  When pressed as to how large the shipments 
to North Korea might be, Feng said it was &unlikely that 
North Korean requests would be denied or reduced.8  Feng 
suggested that if supplies are as large as hoped, China might 
actually ship extra corn to North Korea in late 2008 or early 
¶2009. 
 
¶11.  (C) Econoff,s visits to farms throughout Northeast 
China indicate that this will indeed be a bumper year for all 
crops grown in the region.  The sunflower crop will also be 
quite robust this year, and soybeans and corn both appear to 
be on track for substantial gains over last year,s harvest. 
China still has plenty of room for increasing yields, 
however.  The most striking visual difference between U.S. 
farms and those in China is plant density.  The Chinese plant 
row crops much farther apart than their American 
counterparts.  Improved planting equipment and planting 
methods could substantially increase plant population and 
thus increase yield. 
SWICKMAN