Where will the corn market go after destocking?
As soon as the news came out that the temporary storage purchase price for corn produced in 2015 would be substantially lowered, the domestic corn market immediately entered a downward channel and fell into its most sluggish state in recent years. In this market, which has already been “policy-driven,” the direction of policy dominates the trajectory of price movements. And from a fundamental perspective, a huge stockpile is pressing down from above, supply is very ample, while terminal consumption is weak and the industry has excess capacity, so the supply-demand fundamentals are also bearish. It can be said that, on the whole, corn will face a relatively long period of weak market conditions.
Where will policy go next? We still need to analyze what problem policy most needs to solve. At this stage, for the state, what the corn market most urgently needs is “destocking.” The temporary storage purchases of more than 150 million tonnes in just last year and this year have already placed great pressure on government finances and storage, and can even be called an “unbearable burden.” Therefore, “destocking” is certain to be the main direction of current policy support.
On the one hand, reduce the “supply side” of inventory. This means lowering the temporary storage price so that more grain flows to the market rather than into the state treasury. Thus we saw this year's sudden sharp cut in the corn temporary storage price, which left farmers lamenting. Agricultural policy, which has always taken safeguarding farmers' income as an important goal, was adjusted so rapidly this time, showing that the problems caused by price support have reached the point where they cannot be solved without immediate action.
⟦NL> On the other hand, mobilize the “demand side” of inventory as much as possible. Also conveying an urgent “destocking” signal was the special auction of price-support grain held by the state at the beginning of this year, which for the first time linked the quantity of grain auctioned to the allocation of import quotas. And in May this year, the state also successively issued subsidies for rice and corn-related enterprises in Heilongjiang and Jilin to stimulate enterprises to enter the market and trade, thereby digesting inventory.
At present, with market prices falling and downstream demand sluggish, Jilin Province has once again rolled out its subsidy weapon, issuing the "Notice on Raising the Subsidy Standards for Corn Deep-Processing Enterprises." This move has given a certain boost to the currently sluggish corn market, especially benefiting local deep-processing enterprises in Jilin, but in the broader environment of an overall weak market, subsidies cannot fundamentally change the trend. The effect of the subsidy policies implemented in Heilongjiang and Jilin in May was not very obvious, which is why there was this “increased subsidy.”
⟦NL> Given that at this stage “destocking” is still the main objective of corn policy, there will not be much room for prices to rise, and the overall trend will be “easy to fall, hard to rise.” Of course, in this process, the state will appropriately introduce some similar policies, or may restart deep-processing demand, in order to avoid an excessive drop in grain prices and protect farmers' interests. In a period of major change in temporary storage policy, the state must balance the interests of all parties, and many policies with conflicting goals may be implemented at the same time. The market's chaotic situation will still persist for some time, and various changes need to be closely watched.