Major Corn Policy Adjustment Promotes Rebalancing of Supply and Demand

On November 2, the Ministry of Agriculture issued the "Guiding Opinions on Corn Structure Adjustment in the “Sickle Bend” Region," noting that at present, China's total grain supply and demand are balanced, but structural contradictions are becoming increasingly prominent. Affected by factors such as slowing growth in domestic consumer demand and the impact of imports of substitute products, corn currently faces oversupply, inventories have increased substantially, and planting returns have declined. Based on the corn supply and demand situation and the realities of production development, there is an urgent need to further optimize the planting structure and regional layout and enhance agriculture's efficiency and capacity for sustainable development. Striving to stabilize the corn planting area in the “Sickle Bend” region at 100 million mu by 2020, a reduction of more than 50 million mu from the current level, with priority given to developing silage corn, soybeans, high-quality forage grass, miscellaneous grains and beans, spring wheat, economic forest fruits, and ecologically functional plants, promoting close integration of agriculture and animal husbandry and deep industrial integration, and facilitating improved agricultural efficiency and industrial upgrading.

In July 2015, Minister of Agriculture Han Changfu proposed in a speech at the National Modern Animal Husbandry Construction Work Conference that by the end of the “13th Five-Year Plan,” national output of meat, eggs, and milk should reach 92.2 million tons, 30.5 million tons, and 40.8 million tons, respectively, increases of 5.27 million tons, 1.56 million tons, and 2.4 million tons compared with 2014. According to relevant plans and forecasts, compared with 2014, the output of farmed aquatic products is expected to increase by 7 million tons by 2020. Taking into comprehensive consideration the planning targets for various products, total feed consumption (converted into compound feed) is expected to increase by about 5 million tons per year during the 13th Five-Year Plan period by 2020.

There is assurance that energy feed raw materials can basically be self-sufficient based on domestic supply, but persistently high corn prices seriously affect the competitiveness of the animal husbandry industry. Based on the crop planting structure, China's main energy feed raw materials are mainly corn, with wheat and rice appropriately supplementing them, while grain processing by-products, tubers, and oils and fats are also widely used. Since 2004, China's grain output has increased for eleven consecutive years, especially corn output, which grew from 116 million tons to 216 million tons, effectively ensuring the supply of energy feed raw materials. In 2014, national grain output was 607 million tons, already exceeding the 2020 grain consumption volume (573 million tons) forecast in the "Outline of the National Medium- and Long-Term Plan for Food Security (2008-2020)."

The "Plan for Corn Structure Adjustment in the “Sickle Bend” Region (2016-2020)" (draft for comments) proposed reducing the corn planting area by 50 million mu by 2020, equivalent to reducing corn output by 21 million tons, while at the same time developing 15 million mu of silage corn and 10 million mu of forage grasses such as alfalfa, with the actual impact on feed corn supply at around 11 million tons.

Supported by the temporary storage policy, corn supply exceeds demand

During the “13th Five-Year Plan” period, the annual newly added demand for energy feed raw materials is about 3.5-3.8 million tons. Given that grain ration consumption decreases by about 1 million tons per year over the same period, as long as grain production capacity remains stable at the current level, there will be assurance that energy feed raw materials can basically be self-sufficient based on domestic supply. However, the temporary purchase and storage policy has pushed corn prices to remain high, seriously affecting the competitiveness of the animal husbandry industry. In 2008, the state began implementing the temporary corn purchase and storage policy, and the purchase price increased year by year, from 1,500 yuan/ton to 2,240 yuan/ton, an increase of 49.3%, while the production cost of livestock products increased by about 40% over the same period. At present, the production cost of China's major livestock products is nearly double that of foreign countries, and persistently high corn prices are the main reason.

In addition to the increase in purchase and storage prices, the purchase and storage volume also increased year by year. As of April 30, 2015, China's temporary corn purchase ended, with cumulative temporary corn purchases of 83.2876 million tons, once again setting a historical record. The annual domestic surplus for 2014/15 was 50.24 million tons, and for 2014/15 it is expected to be 53 million tons. In recent years, domestic corn has had consecutive bumper harvests and large temporary storage purchases, but downstream demand has been weak, and the annual surplus has continued to increase. At present, the domestic corn market faces considerable pressure from supply and destocking.

⟦NL> Corn inventories remain high, and the state is eager to destock

Temporary storage purchase price lowered. On September 18, the 2015 Northeast temporary storage purchase policy was released, with a purchase price of 1 yuan/jin (national standard third-class quality standard), with the price difference between adjacent grades set at 0.02 yuan per market jin, and the purchase price lowered by 240 yuan/ton compared with the previous year.

Raising export tax rebates and increasing subsidies benefits deep-processing enterprises. On December 31, 2014, the Ministry of Finance issued the "Notice on Adjusting Export Tax Rebate Rates for Some Products," which mentioned raising export tax rebate rates for some corn processing products. This news benefits domestic corn deep-processing enterprises, and the intensity of deep-processing exports may increase in the next step. In addition, in the past two years, subsidies for deep processing in Northeast China have been continuously increased, mainly because domestic corn inventories are high and downstream demand is weak, causing slow state treasury destocking. Subsidies are used to boost the enthusiasm of deep-processing enterprises to participate in auctions and their operating rates, which is conducive to the digestion of state inventories.

Adjusting the planting structure. At present, relying only on lowering the temporary storage purchase price or increasing deep-processing subsidies to consume inventories cannot truly solve the problem of high inventories. Steadily adjusting the planting structure and guiding farmers to shift to other crop varieties is the necessary path to de-inventory corn. On June 28, the Ministry of Agriculture held a symposium on agricultural structure adjustment for the four northeastern provinces and regions in Changchun, Jilin, where Han Changfu proposed adjusting the corn planting structure, and the four northeastern provinces and regions should reduce the corn planting area next year. On November 2, the Ministry of Agriculture issued the "Guiding Opinions on Corn Structure Adjustment in the “Sickle Bend” Region," once again emphasizing optimizing the planting structure and regional layout and enhancing agriculture's efficiency and capacity for sustainable development.

At present, domestic corn supply and demand are seriously imbalanced. Through optimizing the planting structure and with the support of many state policies, in the long run, domestic corn prices will move toward marketization in the future and are expected to align with international markets, at which point the domestic corn market will enter a situation of balanced supply and demand.