Domestic grain inventories are high and warehouse capacity is tight, and purchasing and sales have entered a new normal

After a period of confusion, struggle and adaptation, in today's China, the judgment of the “new normal” of the economy has become a consensus. Under the shadow of the broader environment, domestic grain supply and demand have also gradually entered a new cycle, market contradictions have gradually become prominent, and grain purchasing and sales have also shown a “new normal”, with established market thinking constantly being broken.

“Three increases at once” becomes the “new normal”

Although China has achieved a “twelfth consecutive increase” in summer grain and an “eleventh consecutive bumper harvest” in annual grain output, at the same time, a situation has emerged in which import volumes and inventory levels have both increased.

The phenomenon of “three increases at once” is indeed a new situation that has appeared in recent years, but its emergence also has its inevitability. Due to policy support, farmers' enthusiasm for planting has increased, and grain output has increased year after year; due to policy support, domestic grain prices have risen year after year, domestic and international prices have inverted, and import pressure has increased; due to policy support, policy-based purchasing and storage efforts have intensified, and huge inventories have emerged as a result.

⟦NL> Could it be that policy “caused the trouble”?

In this regard, Shen Hongyuan, a senior analyst at the Zhengzhou Grain Wholesale Market, believes that “the original intention of the policy was good. Although the situation of ‘three increases at once’ will continue to have an adverse impact on China's grain market, such as falling grain prices, heavy fiscal pressure, and increased market dependence, the root of the problem lies in the difficulty of terminal consumption supporting the current supply situation.”

“We can view ‘three increases at once’ in a positive and correct way,” Shen Hongyuan said. “Against the background of loose supply at the current stage, ‘three increases at once’ can give China's grain market and agricultural development more time for adjustment and opportunities for improvement. For example, the requirements for output can be moderately lowered, and by adjusting China's agricultural planting structure during a period of a relatively high ‘inventory-to-consumption ratio’, fallowing can be carried out to an appropriate extent and farmers can be given appropriate subsidies; or the period of ‘three increases at once’ can be used to adjust the domestic extensive production mode, and by increasing imports and expanding the release of reserves, pressure on domestic water resources, environmental resources, and production and planting can be alleviated; the price advantage or quality advantage of imported grain varieties can also be appropriately used to stimulate domestic promotion and cultivation of high-quality varieties.”

Tight warehouse capacity is a “hard injury” and new grain purchasing is becoming more difficult

Grain purchasing and storage policies over many years have stabilized farmers' income and been an important driving force for China's consecutive years of grain output increases, but related problems have also continuously appeared in some regions: continuous policy-based purchasing and storage have caused large amounts of grain sources to enter national inventories, national policy-based grain auctions have sold poorly, and years of accumulated overlap have caused tight warehouse capacity in some areas and increased difficulty in purchasing new grain.

Taking corn as an example, according to estimates, China's current temporary storage corn surplus is about 150 million tons, and because planting areas for soybeans, cotton, miscellaneous grains and others have continuously shifted noticeably to corn, China Grain Network predicts that China's new-season corn output in 2015 is expected to reach 219.7 million tons, setting another historical high.

Starting in 2008, the state implemented a temporary corn reserve policy in Northeast China. Against the backdrop of the financial crisis that year, this policy played a very important role in protecting farmers' enthusiasm for planting and safeguarding national food security; of course, it was also precisely because of this policy that grain warehouse capacity in Northeast China became severely insufficient. According to Song Haihe, director of the Purchasing and Sales Planning Division of Sinograin's Jilin Branch, at present various types of grain under the branch's jurisdiction are severely overloaded, with corn the most serious; warehouses are currently full, unable to be sold, transferred out, or stored further, deep processing is severely underutilized, feed grain use has fallen sharply, and low-cost substitutes have increased. “At present, the branch and local state-owned grain enterprises have no spare warehouse capacity, and with limited personnel for leased-warehouse purchasing and many hidden risks in entrusted purchasing, large amounts of backlogged grain will face problems of being unmanageable and poorly managed.” Song Haihe said.

In Henan, a major grain-producing province, wheat minimum purchase price market-support purchasing has been launched for many consecutive years. While ensuring smooth channels for farmers to sell grain and protecting farmers' grain-growing income and planting enthusiasm, the problem of tight warehouse capacity is equally prominent. According to relevant personnel from Sinograin's Henan Branch, as of now grain under central authority in Henan's jurisdiction has exceeded 30 million tons, and the warehouse capacity of directly affiliated enterprises is already fully utilized. If policy-based purchasing and storage is launched again later, it will face the problem of insufficient warehouse capacity.

On October 8, the National Food Administration issued a notice using two “unprecedented” phrases to describe the current grain storage situation: “At present, China's grain inventory has reached a new high. The quantity of grain stored by various grain and oil storage enterprises is unprecedented, and the quantity of national policy-based grain stored in open-air and simple storage facilities is also unprecedented.”

In this regard, Zhang Zhixian, vice president of the Yida Research Institute, said, “Because the leading role of policy grain has been relatively obvious in recent years, during the current period of policy transformation, purchases by other entities will be more cautious, leading to a reduction in purchasing entities outside policy, thereby once again strengthening the market's dependence on policy-based purchasing. At the same time, policy pricing cannot well reflect supply and demand relationships, and price signals are distorted, which also makes the structural imbalance among grain varieties prominent, thus appearing as relatively obvious inventory backlogs in some varieties.” Zhang Zhixian suggested, “Subsidies to grain-growing farmers should be increased. On the premise of ensuring farmers' grain-growing income, the process of reforming the price formation mechanism should be accelerated, allowing prices to reflect true supply and demand and guiding the adjustment of the planting structure.”