The temporary corn storage policy in Northeast China must be implemented well, and enterprises should be encouraged to actively enter the market to purchase.
Since the beginning of this year, against the backdrop of ample domestic corn supply, weak industrial demand, and increased imports of substitutes, the domestic corn market has generally operated weakly, and in the second half of the year corn market prices have shown a continuous downward trend. On September 17, the state announced this year's temporary corn purchase and storage price. Recently, with the large-scale listing of new corn, downward pressure on domestic corn prices has intensified somewhat.
At present, what prominent features does the domestic corn market situation have? What opportunities and challenges does the entire corn industry chain face? What measures should be taken to effectively protect farmers' interests and help processing enterprises get through these difficulties? In response to the deep-seated problems in the corn industry, what solutions are there? To this end, the reporter interviewed the Agricultural Information Analysis and Early Warning Team for the Entire Corn Industry Chain of the Ministry of Agriculture.
Reporter: At present, new corn has already begun to be listed in large quantities. How is the domestic corn market situation?
Agricultural Information Analysis and Early Warning Team for the Entire Corn Industry Chain of the Ministry of Agriculture: On October 9, experts from the Agricultural Information Early Warning System for the Entire Corn Industry Chain of the Ministry of Agriculture held consultations in Changchun, Jilin, on the 2015 corn market situation and initially formed the following views:
Overall, in 2015 China's corn production will again achieve a bumper harvest, with corn output basically flat compared with the previous year, while the pattern of weak market demand and institutionally loose supply has not changed. From the situations reported by various parties, production increases and decreases varied across regions. Corn production in Hubei, Hunan and other places increased somewhat, while corn in some parts of Northeast China may have decreased slightly. According to surveys by agricultural departments in Northeast China, affected by the summer drought in mid-to-late July this year, corn in traditional drought areas such as western and eastern Liaoning, central and western Inner Mongolia, and western Jilin and Heilongjiang suffered drought, and per-unit yields declined. It is expected that production in some areas may decrease slightly.
On September 17, the state announced the temporary corn purchase and storage price in advance, market prices continued to fall, and the opening purchase price for new corn was noticeably lower than the previous year. At present, corn in North China and Northeast China is gradually being listed in large quantities. On October 14, corn purchase prices in Heze, Liaocheng and other places in Shandong were 1560-1600 yuan/ton, down about 400 yuan year-on-year. The current corn price in Henan is 0.7-0.8 yuan/jin, down more than 20% year-on-year. On October 8, the corn purchase price in Inner Mongolia was 1950-2000 yuan/ton, down about 100 yuan from early September and down about 20% from the same period last year. Some processing enterprises in Jilin posted notices in late September to purchase new grain, with an opening price of 1800-1900 yuan/ton, down about 300 yuan year-on-year. With Northeast China launching temporary corn purchase and storage on November 1, corn prices are expected to gradually stabilize later.
Reporter: From a comprehensive analysis, what characteristics of China's corn industry are currently worth attention?
Agricultural Information Analysis and Early Warning Team for the Entire Corn Industry Chain of the Ministry of Agriculture: First, pressure from market-oriented purchasing and sales has increased. This year's temporary corn storage purchase policy requires strict implementation of national standards and no longer relaxes relevant quality standards such as the content of moldy kernels. While ensuring the quality and safety of grain purchased and stored by the state, this will also greatly reduce the volume of state temporary storage purchases, meaning that more corn will enter the market circulation link. In addition, most farmers in Northeast China lack drying facilities, and improperly stored corn after harvest is highly prone to moldy kernels, causing sales difficulties. Therefore, doing a good job in publicity and services for corn storage and purchasing, and guiding farmers to “grow good grain, harvest good grain, and sell at a good price” will become the focus of alleviating purchasing and sales pressure in the Northeast corn market.
Second, production reductions in some areas of Northeast China, combined with falling grain prices, have caused grain farmers' incomes to fall sharply compared with expectations. From the situations reported by various parties, material costs for corn have changed little and labor costs have increased slightly, but land rental costs have risen considerably. In some areas, land transfer fees for large-scale growers account for about half of production costs. Coupled with reduced corn production and falling grain prices, most large-scale growers have seen relatively large declines in returns. According to a cost-benefit survey of 860 corn growers in 25 counties by the Information Center of the Heilongjiang Provincial Agricultural Commission, total corn production cost was 847.10 yuan/mu, an increase of 6.63 yuan year-on-year. Average net income per mu of corn was 90.88 yuan, a decrease of nearly 200 yuan from the previous year.
Third, Northeast China's processing enterprises have a relatively large proportion of losses, while North China's processing industry is showing a recovery trend. This year, the corn deep-processing industry in Northeast China is in the most difficult period in history, and some enterprises have already seen cash flow losses. According to analysts' surveys, the actual annual processing volume of corn deep processing in the three Northeast provinces and one region is only 17 million tons, with an overall operating rate of only 40%. Due to the continued sharp decline in corn prices, the corn processing industry in North China has shown an obvious recovery trend. According to a survey by Shandong Zhuochuang Information Co., Ltd., at present the operating rate of some deep-processing enterprises in Shandong remains at 50%-60%, and for the full year it is expected to be 5%-8% higher than the previous year. As the operating rate of deep-processing enterprises in North China increases, corn consumption is expected to gradually recover, which is conducive to stopping the decline and stabilizing the market later.
Fourth, the inversion of corn prices between Northeast China and North China may become the norm. According to monitoring by Shandong Zhuochuang Information Co., Ltd., in September the average corn price in Northeast China was 2200 yuan/ton, while average corn prices in provinces in North China were 2000-2100 yuan/ton. It is expected that in October corn prices in Northeast China will fluctuate around 2000 yuan/ton, while prices in North China may fluctuate at 1800-1900 yuan/ton. Northeast China becoming the domestic corn price “highland” is conducive to raising farmers' enthusiasm in major producing areas and stabilizing corn production in Northeast China, but it is not conducive to shipping out Northeast corn with high inventories, and policy support for corn deep-processing enterprises and feed enterprises in Northeast China urgently needs to be increased.
Fifth, corn import substitution will decrease later. Since the beginning of this year, China's imports of corn and its substitutes have increased substantially. From January to August, China's total imports of corn, sorghum, barley, dried cassava and corn distillers grains (DDGS) reached 30.55 million tons, already exceeding total imports for the whole of last year. The temporary corn purchase and storage price is basically close to the import prices of sorghum and barley, and current market prices are generally lower than the temporary storage purchase price. Imported barley and sorghum will no longer have an obvious competitive advantage as feed consumption, and it is expected that the growth rate of corn imports will slow in the future, while imports of corn substitutes will also decline substantially.
Reporter: In response to the difficulties brought to farmers' income increase by the current decline in corn prices and the pressure of corn purchasing in Northeast China, what strategies should be adopted?
Agricultural Information Analysis and Early Warning Team for the Entire Corn Industry Chain of the Ministry of Agriculture: At present, in response to the prominent problems facing the corn market, it is necessary to effectively implement the temporary corn storage policy, introduce policies as soon as possible to encourage deep-processing and feed enterprises to purchase and process new grain, stabilize market expectations, protect farmers' interests, and help corn processing enterprises get through these difficulties. Short-term response strategies mainly include:
First, the state's temporary storage should increase purchasing intensity to stabilize market expectations while stimulating the enthusiasm of market entities to purchase and process corn. Processing enterprises suggest that, by reference to the purchase fees, storage fees, policy interest subsidies and other fees the state gives to temporary storage enterprises, subsidizing enterprises in Northeast China by more than 250 yuan per ton for purchasing and processing corn could effectively mobilize enterprises to purchase new grain.
Second, improve the state reserve corn auction policy. Processing enterprises suggest changing the order of temporary storage auctions from the “first in, first out” method to the “last in, first out” method, especially auctioning first the corn purchased in 2014, so as to effectively reduce temporary storage inventories and fiscal pressure.
Third, announce next year's corn purchase policy in advance. After the autumn harvest each year and at the latest before spring sowing, the purchase policy should be released externally to send price signals, let farmers be psychologically prepared, and carry out planting structure adjustment work in advance.
Fourth, find a way out for corn structure adjustment. Vigorously support the construction of large-scale silage corn planting bases, increase subsidies for converting to rice, wheat, soybeans, miscellaneous grains, grass, and fruits and vegetables, expand the scope of subsidy pilots, and focus on supporting new-type business entities engaged in large-scale planting.
Reporter: From a long-term perspective, to solve the fundamental problems constraining the development of the corn industry, what policy suggestions are there in areas such as adjusting industrial policy and reforming regulation mechanisms?
Agricultural Information Analysis and Early Warning Team for the Entire Corn Industry Chain of the Ministry of Agriculture: In response to the fundamental problems constraining the development of the corn industry, it is necessary to further improve institutional mechanisms and create medium- and long-term policies.
First, improve the price regulation and reserve mechanism. Launch reform of the corn purchase and storage mechanism and regulation mechanism, and form a regulation system combining price guidance with market adjustment, and social reserves with marketing loans.
Second, establish an insurance system covering agricultural production disasters and market risks, to prevent small and medium-sized farmers from bearing excessively high market risks and income risks in the process of improving the agricultural product price formation mechanism.
Third, explore a credit support system for the production and marketing of important agricultural products. Drawing on the non-recourse loan collateral operation method of the United States, and combining it with socially operated purchase and storage policies, explore and innovate credit support methods for production and marketing.
Fourth, improve the risk management and market regulation system for important agricultural products. Set up price safety belts for important agricultural products, and explore implementing a special operation system for imported agricultural products and an import price differential adjustment tax system to ensure that import prices are not lower than domestic production cost prices.
Fifth, establish a grain supply and demand balance sheet release system to enhance pricing power and guiding influence in the international market.