Corn output up, price down, growing grain no longer profitable: large operators break contracts and abandon farmland after land transfer
The national autumn harvest is nearly complete. As the main autumn harvest crop, this year's corn output will rise again, but farmers in the main producing areas who are welcoming the bumper harvest are hardly happy. Reporters from Economic Information Daily learned in interviews in Hebei, Jilin and other provinces that the current corn purchase price is significantly lower than in previous years, severely dampening grain farmers' enthusiasm for growing grain, and some large grain-growing operators who took over transferred land have even begun to break contracts and abandon their leases. At the same time, corn inventories remain persistently high, continuously eroding the profits of the deep-processing industry. Several experts pointed out that several major staple grains, including corn, currently have many long-standing problems in their price formation mechanisms, and that the current temporary storage policy needs to be improved and reformed at an accelerated pace, using the hand of the market to solve the problems.
Corn output up, price down, hurting farmers' morale
“The price is too low now, I want to wait a while before selling.” said Li Qing, a farmer from Donghuo Village, Xinyi Township, Cheng'an County, Hebei Province. This year's corn price is too low, squeezing most of his profit. “I won't lose money, but the profit is gone.”
Most of Hebei's autumn grain has now been harvested, and autumn planting is proceeding in an orderly manner. Reporters learned in interviews in Hebei that farmers reported that this year's corn grew well and output rose steadily, but prices kept falling. Taking new corn as an example, the price has already dropped from around 1.1 yuan/jin when it first came on the market to around 0.8 yuan/jin now, significantly lower than in previous years and below farmers' expectations, leading farmers to hold back from selling. Grassroots farmers also reported that the comparative returns from growing grain were already low, and with this year's sharp drop in grain prices, farmers' interests have been severely harmed. This has forced large grain-growing operators to adjust their planting structure and reduce planting area, with enthusiasm for growing grain dropping to freezing point.
Some large grain-growing operators also said that corn prices are sluggish, but no companies are taking the opportunity to buy. In the companies' view, corn prices will continue to fall, and there is currently a price but no market: buyers are unwilling to buy, and sellers are unwilling to sell.
A relevant official from the Handan Municipal Agriculture Bureau analyzed that at current price levels, a farmer's net income per mu per year is 300 yuan, while large operators, due to economies of scale, earn 500 yuan to 600 yuan. The comparative returns from growing grain were already low, and this year's sluggish corn prices will also cause farmers' incomes to decline to varying degrees, further suppressing farmers' enthusiasm for growing grain.
As for future prices, several large grain-growing operators expressed pessimism, saying prices may remain persistently weak, and large operators intend to reduce the area planted with field crops.
Handan large grain-growing operator Li Bo has taken over 5,000 mu of transferred land. He said that this year's corn price is low, and after deducting various costs, he merely breaks even. He had originally planned to expand the transferred land area, but facing current price conditions, he has had to give up that idea. In addition, to keep operating, he plans to expand vegetable planting area. Currently, 20 percent of the transferred land is planted with vegetables, and next year he plans to raise that proportion to 30 percent.
Industry insiders analyzed that because large transfer operators face persistently high planting costs, with heavy annual rent pressure, and lack loan collateral, large operators' capital chains are generally tight, and contract-breaking and lease-abandonment have already appeared. Ordinary farmers, seeing the low returns from growing grain, are even less willing to farm. Farmers will not take back the land, and large operators cannot exit their leases.
Zhang Shuting, deputy director of the Cheng'an County Agriculture Bureau, said that this year's corn price is so low that it is rarely seen in recent years. The comparative returns from growing grain were already low, and now farmers are being hurt by cheap grain, so all parties need to carefully consider how to protect farmers' enthusiasm for growing grain.
Large quantities of policy grain pile up, warehouses full to bursting
Previously, the National Development and Reform Commission, the State Administration of Grain, the Ministry of Finance and the Agricultural Development Bank jointly issued a document announcing this year's corn purchase and storage price. The listed purchase price was 1 yuan per jin, down 10.7 percent from last year's average price of 1.12 yuan per jin. The announcement of this decision caused corn futures market prices to fall in response.
It is reported that starting in 2008, the state implemented a temporary corn storage policy in Northeast China. Against the backdrop of that year's financial crisis, the temporary storage policy played a very important role in protecting farmers' enthusiasm for planting and safeguarding national food security. However, as market conditions changed, because China's temporary storage corn prices in the past only rose and never fell, the policy's negative effects became increasingly prominent, and the grain inventory problem gradually intensified.
According to estimates, as of now China's temporary storage corn surplus stands at the level of 150 million tons. Because the transfer of soybean, cotton, miscellaneous grain and other planting areas to corn has become increasingly obvious, the China National Grain and Oils Information Center predicts that China's new-season corn output is expected to reach 232 million tons, setting another historic high. The National Grain Trading Center's auction situation this year shows that the cumulative auctioned and sold corn volume so far this year is only 5.86 million tons, far below the market expectation of 20 million to 30 million tons.
Song Haihe, director of the Purchase and Sales Planning Division of Sinograin's Jilin Branch, told reporters that grain of various types under the branch's jurisdiction is currently severely overloaded. “The warehouses cannot be emptied, deep-processing capacity utilization is severely insufficient, feed grain use has also fallen sharply, and with the increase in low-cost substitutes, warehouses for grain inventories, mainly corn, are full to bursting.”
It is understood that although Jilin Province introduced support and subsidy policies for grain processing enterprises this year (the central government subsidizes 100 yuan/ton for each ton of corn processed by an enterprise, and local governments subsidize another 50 yuan/ton), because the price gap far exceeds the subsidy level, the policy results are not obvious, auction transaction volume is low, and market purchasing power is severely insufficient.
Since early May, the state has for 12 consecutive weeks released temporary storage corn auction quotas to Jilin Province. Although this year the state moved the temporary storage auction time about two weeks earlier than last year, total transaction volume was only 1.3544 million tons, down more than 75 percent from the same period last year. “Low transaction volume directly reflects weak current market demand. Enterprises still lose money even after receiving subsidies, so it is very hard for them to be interested in auctions.” said Liu Xiaoran, deputy secretary-general of the Corn Branch of the China National Association of Grain Sector.
Looking at Jilin Province's situation, feed and deep-processing enterprises are suffering severe losses. Alcohol processing enterprises are losing 600 yuan to 800 yuan/ton, and starch processing enterprises are losing 100 yuan to 300 yuan/ton, with most enterprises in a state of shutdown or semi-shutdown.
Not only is consumption insufficient, but since the beginning of this year the state has not arranged cross-provincial warehouse transfers, resulting in no channel for emptying warehouses and transferring stocks. Warehouses are full to bursting, and there is a phenomenon of being unable to sell, unable to transfer out, and unable to store. “This year's corn output is estimated at at least 30 million tons. At present, the branch and local state-owned grain enterprises have no spare warehouse capacity. In addition, with limited staff for rented warehouses and purchases, and many hidden risks in entrusted purchases, large amounts of piled-up grain will create problems of being unmanageable and poorly managed.” Song Haihe said.
Song Haihe told reporters that at present Sinograin's Jilin Branch has a large inventory volume, spread across many points and wide areas, with 24.3 million tons of grain stored in the open air, and more than 40,000 open-air storage positions. In particular, some storage points use non-standard warehouses to store grain, lacking mechanical ventilation, electronic temperature monitoring and other functions, and lacking grain storage experience, making it very easy for grain piles to heat up, condense, breed insects, grow moldy or even spoil. Some enterprises' firefighting and lightning protection facilities do not meet requirements, posing certain workplace safety hazards.
Corn deep-processing enterprises suffer from “subsidy dependence”
Zhang Changcheng, director of the Science and Technology Industry Division of the Jilin Provincial Grain Bureau, told reporters that affected by unfavorable factors such as increased downward pressure on the economy, weak product demand and continuously rising raw material costs, corn deep-processing enterprises in Jilin Province have fallen into difficulty and have seen losses across the entire industry for consecutive periods.
In addition to high inventories, the heavy losses in the deep-processing industry are also a relatively large negative effect brought by this round of corn price declines. According to reports, as of the end of July, the ex-factory price of corn starch in Changchun was 2,900 yuan to 3,000 yuan/ton. Producing one ton of starch meant a loss of 200 yuan/ton; converted into processed corn, corn deep-processing enterprises in Changchun lost 169 yuan for every ton of corn processed. Losses in alcohol processing were even more severe.
In fact, losses in the corn deep-processing industry did not appear only this year. In the late 1990s, because of large corn surpluses, the contradiction between the state's difficulty in storing grain and farmers' difficulty in selling grain was relatively prominent. Jilin Province took the lead nationally in vigorously developing the corn deep-processing industry, which alleviated the corn purchase and storage problem to a relatively large extent and also played an important role in promoting farmers' income growth. But since the second half of 2012, grain deep-processing industries across Jilin Province have encountered high costs, declining selling prices, weak demand, and, added to “homogenized” competition and increasingly similar product structures, a serious industrial crisis has emerged. Most enterprises have suffered losses and shut down, and the market has shrunk. Although the state has taken measures to provide subsidies as a “blood transfusion,” the decline has still been hard to reverse, and measures are urgently needed to resolve the current difficulties in the corn deep-processing industry.
Reporters learned in Songyuan, Yushu, Siping and other places in Jilin Province that local corn deep-processing enterprises are “losing money and still producing.” Because shutting down would mean facing problems such as equipment aging and market loss, some stronger enterprises are “gritting their teeth” to produce, all hovering on the edge of shutdown or semi-shutdown.