National Grain Reserves Face Bumper Harvest Challenge as Stockpiles Overflow
Recently, researchers from the Outlook Think Tank investigated several major grain-producing cities in Heilongjiang Province and learned that due to severe inversion of domestic and international grain prices, deep-processing grain enterprises falling into industry-wide losses, and generally insufficient operating rates with weak demand, the grain market has shown an obvious "policy market". Affected by factors such as the inability to connect the starting auction price of policy grain with the domestic market price, stockpiled grain in many areas of Heilongjiang Province has fallen into a situation where "it cannot be auctioned off or sold".
Facing the double squeeze of a cost "floor" and a price "ceiling", and the double constraints of resource "red lights" and subsidy "yellow lines", the construction of the national grain reserve system faces the test of adjustment, upgrading and transformation.
On September 17, the National Development and Reform Commission, the National Grain Administration, the Ministry of Finance and others jointly issued the Notice on Issues Concerning the 2015 National Temporary Storage Corn Purchase in Northeast China, continuing the temporary corn storage policy, but the purchase price was significantly lower than last year. Taking Heilongjiang as an example, the purchase price of corn meeting the relevant standards was 1 yuan per jin, 0.11 yuan lower than last year.
Experts pointed out that lowering the temporary storage corn purchase price can alleviate the current oversupply in the corn market, but it is necessary to prevent simply adjusting policies because there is more grain, which would affect farmers' enthusiasm for growing grain.
Grain Stockpiles Overflow
"Overall, the three major crops of rice, corn and soybeans are basically mature, and another bumper grain harvest is a foregone conclusion." At the 2015 Heilongjiang Golden Autumn Grain Trade and Cooperation Fair held on September 17, the relevant person in charge of the Heilongjiang Provincial Grain Bureau made the above introduction.
In 2010, Heilongjiang Province's total grain output exceeded 100 billion jin for the first time. From 2011 to 2014, it continuously became the country's largest grain-producing province. Another bumper harvest this year means that Heilongjiang Province has achieved "twelve consecutive bumper harvests".
However, hidden concerns are beginning to emerge behind the bumper harvest. As China's largest grain-producing province, as the volume of policy-based grain purchases gradually increases, the pressure on stockpiles is growing. In the 2014-2015 grain purchase season, the province purchased a total of 144.2 billion jin of new grain, of which 102.4 billion jin was policy grain, about 70 percent of the total purchase volume. Both the total grain purchase volume and the policy grain purchase volume reached record highs.
In recent years, Heilongjiang Province has built a large amount of new warehouse capacity, but it is far from keeping up with the grain purchase volume. In the yard of Hailun Shengli Grain Depot Co., Ltd. in Hailun City, Heilongjiang Province, there are various grain storage facilities such as brick-concrete warehouses, canopy warehouses and "thousand-ton bins". More than 40,000 tons of stored grain has set a new inventory high for this grain depot.
The situation at Hailun Grain Depot is not an isolated case. The vast majority of grain depots in Heilongjiang Province are "full of grain". Not only Heilongjiang, but the entire Northeast region is under great pressure from grain stockpiles.
"Policy Market": Severe Inversion of Domestic and International Grain Prices
The backlog of grain stockpiles is mainly due to weak demand. Experts said that affected by the poor economic situation, the feed industry is severely depressed. Due to the inversion of domestic and international corn prices, deep-processing products such as starch and alcohol have remained sluggish for many years. Grain and oil processing enterprises face unprecedented difficulties. In major producing areas, grain processing enterprises are operating below capacity and losses are intensifying, with the trend growing stronger.
A March survey by the Heilongjiang Provincial Grain Bureau showed that rice processing enterprises in the province lost 14 yuan per ton of raw material in comprehensive processing of new and old rice; corn deep-processing enterprises lost about 170 yuan per ton of raw material. In 2014, 491 grain processing enterprises in Heilongjiang Province suspended production for this reason, and from January to March this year the number expanded to 822.
Relevant experts said that this industry-wide loss phenomenon among grain processing enterprises is common in many major grain-producing areas. Imported and smuggled rice has severely hit the domestic rice processing industry. Some imported rice arrives at a port price similar to Heilongjiang Province's minimum purchase price for rice. Smuggled rice is even cheaper, at only about 1.2 yuan per jin, far below the minimum purchase price of 1.5 yuan per jin.
The corn deep-processing industry also faces the impact of the scissors gap between imported corn and local corn, with enterprises suffering severe cost inversion. According to the relevant person in charge of the Regulation Division of the Heilongjiang Provincial Grain Bureau, the landed price of imported corn in the south is only about 1,600 yuan per ton, far below Heilongjiang's temporary storage corn purchase price of 2,200 yuan per ton last year.
Domestic corn prices are high, and large quantities of foreign corn and substitutes for its downstream deep-processing products are imported, directly leading to a decline in corn consumption in many areas of China, accumulation of stockpiles, and increasingly severe pressure on purchasing and storage in major grain-producing areas.
Due to poor market-based sales, large quantities of grain in Heilongjiang Province have entered state reserve warehouses through the temporary storage policy. Since the listing of new grain last year, affected by factors such as periodic domestic oversupply of grain and severe inversion of international and domestic grain prices, the grain purchase and sales market has shown an obvious "policy market".
Distorted Supply and Demand Relationship in the Grain Market
In order to support the development of grain processing enterprises in the province and accelerate stock digestion, in April this year the Heilongjiang Provincial Government issued a subsidy policy for enterprises in the province to bid for national policy grain. Initially, eligible enterprises received a subsidy of 200 yuan per ton for bidding to process corn and 100 yuan per ton for bidding to process rice. As prices of corn deep-processing products such as starch continued to decline, the losses of grain processing enterprises further increased, and the original subsidy amount could not stimulate enterprises' enthusiasm for bidding. Heilongjiang raised the subsidy amount again in July, increasing the corn subsidy to 400 yuan per ton and the rice subsidy to 200 yuan per ton.
At present, the effect of the subsidy policy has begun to appear. Statistics show that from January to March this year, 665 rice processing enterprises in the province started production, processing 2.86 million tons of rice. From January to July, the number of operating enterprises increased to 883, and processing volume increased to 6.57 million tons.
However, the effect on alleviating the pressure of policy grain stockpiles in Heilongjiang Province is not great. Statistics show that from the start of rice auctions on April 8 to mid-July, among the 102 rice processing enterprises in the province included in the subsidy scope, only 38 participated, and a total of only 490,000 tons were auctioned. The transaction price was between 1.55 and 1.59 yuan per jin, with not a single premium.
After high subsidies, the auction transaction rate of processing enterprises is still very low. An important reason is that the policy grain auction price cannot connect with the market. At present, policy grain auctions implement a "no-loss" policy of selling at a price following the purchase price: auction price = purchase price + storage fee of 2.5 fen per jin. "But the price calculated this way is far higher than the market price." said Zhang Jianjun, director of the Qiqihar Directly Subordinate Depot of Sinograin. The depot has 1 million tons of soybeans stored for 4 years. The purchase price was 2.3 yuan per jin, and the current market price is only 2.05 yuan per jin. At a price following the purchase price, nobody wants it at all.