Grain Prices Slump: How Can Processing Enterprises Break Through Against the Odds?
Since the beginning of this year, the prices of major domestic grain crops have continued to decline, drawing attention from all sectors. The fall in grain prices has not only affected grain farmers but also brought considerable confusion to domestic grain processing enterprises. With market prices changing from day to day, enterprises dare not rashly purchase large quantities of grain; amid a wait-and-see and semi-shutdown state, many enterprises are struggling to get by, and some have even gone bankrupt and closed down. The current phenomena in the grain market urgently require our close attention; through policy support, we must help grain farmers and enterprises tide over these difficulties.
Last year's rice, after processing, sold for 2.02 yuan per jin. This year's new rice has not yet been processed; we dare not purchase in large quantities, nor dare to process it. Now the price of new rice is not even 1.9 yuan per jin. Not operating will definitely mean a loss; operating may mean an even bigger loss.
Rice prices change daily, enterprises dare not purchase in large quantities
As large quantities of new rice come onto the market, the rice market, which had been lukewarm for 3 consecutive years, has seen a sharp decline. High-quality hybrid rice fell from 2.10 yuan/jin in September to 1.8 yuan/jin in mid-October; japonica rice fell from 2.16 yuan/jin in September to 1.9 yuan/jin in mid-October; glutinous rice plunged from 2.85 yuan/jin in early September to 2.2 yuan/jin on October 25.
Because processing enterprises have suffered severe losses for consecutive years in recent years, they have had to stop or reduce purchases, maintaining production through quick in-and-out turnover. The recent trend in the glutinous rice market of prices dropping by 0.05 yuan/jin every day has made many enterprises dare not purchase in large quantities. Even by being extremely cautious, many processing enterprises and distributors have still been trapped. Sales channels, because prices change so quickly, dare not place orders, and the market has become sluggish.
To protect themselves, enterprises have stopped purchasing rice externally and are waiting for the market to stabilize. Most enterprises dealing in glutinous rice in Huaiyuan and Nanling have halted production and stopped purchasing, because large quantities of glutinous rice have not yet come onto the market, and all fear the market will decline further. Some of the enterprises that purchased and stored earlier are effectively already bankrupt; the more rice they purchased, the more they lost.
After the launch of the market-support program, enterprises have become even more cautious and dare not blindly chase high prices. Actual purchase prices have stabilized at 1.30 yuan/jin to 1.32 yuan/jin. After mid-October, as mid-to-late indica rice came fully onto the market, indica rice prices fell in a straight line, dropping to 1.2 yuan/jin. Enterprises that purchased earlier suffered comprehensive losses, farmers' rice at the mill gate was less than 1 yuan/jin, and contract growers also suffered severe losses. The glutinous rice market continued the downward trend of agricultural products, falling from 1.85 yuan/jin in September to 1.4 yuan/jin in mid-to-late October. Various purchasing and storage enterprises have all stopped or suspended purchasing and storage, farmers' rice has lost its purchasing entities, and they face the severe situation of having nowhere to sell.
Rice prices are so low, yet why do ordinary people not feel any “discount” in supermarkets? Mr. Tian explained that this is a problem in the circulation sector. Freight costs, distributor profits and various supermarket fees are added to the rice price, and in fact have little to do with the price of grain, just as vegetable farmers do not make money growing vegetables.
⟦NL> High imports and high inventories cause rice prices to fall, increasing the risk of market miscalculation
It is reported that in the first 7 months of 2015, China imported 72.568 million tons of grain. By June of this year, China's mid-to-late indica rice was 51% higher than the duty-paid price of Thai rice, and wheat and corn were also 56% and 65% higher respectively than the international market average, severely impacting the domestic grain market.
Because the market favors low-priced imported products even more, domestic inventories are difficult to digest. Rice inventories alone reached 80 million tons, equivalent to 46.5% of the total rice output for the whole of 2014. High inventories have increased the fiscal burden and also hindered the warehouse demand for market-support purchasing and storage when new rice comes onto the market.
Local governments' policies on rotated grain have shifted from sales at parity prices to subsidized sales. As soon as Heilongjiang Province introduced a policy of subsidizing 200 yuan per ton of auctioned grain, it broke the market pattern of japonica rice price increases in summer that had held for many years, causing japonica rice prices to fall instead of rise, with rice prices dropping by as much as 0.04 yuan/jin. In Anhui Province, rotated grain fell from 1.25 yuan/jin at the beginning of the year to 1.13 yuan/jin, impacting the low-grade rice market and intensifying competition in the mid-range rice market. The uncertainty of local government policies brought about by high imports and high inventories has increased. The rice market, which previously moved in increments and decrements measured in fen, has entered a market of increments and decrements measured in jiao, and market risk has increased exponentially.