Prices of the three major staple grains fall together, agricultural product price reform may accelerate
A bumper harvest without a bumper income: this autumn, farmers may not have much to celebrate. Since the third quarter, prices of the three major domestic staple grains have fallen steadily. According to statistics, corn saw the largest drop, with the purchase price falling from the year's high of 2279 yuan/ton to 1980 yuan/ton, a decline of 13.1%; the wheat purchase price fell from the year's high of
A bumper harvest without a bumper “income”: this autumn, farmers may not have much to celebrate.
Since the third quarter, prices of the three major domestic staple grains have fallen steadily. According to statistics, corn saw the largest drop, with the purchase price falling from the year's high of 2279 yuan/ton to 1980 yuan/ton, a decline of 13.1%; the wheat purchase price fell from the year's high of 2564 yuan/ton to 2274 yuan/ton, a decline of 11.3%; and the early rice purchase price fell from the year's high of 2720 yuan/ton to 2595 yuan/ton, a decline of 4.6%.
Both imports and output grow
“The state purchase-and-storage price for corn is now 1 yuan/jin, but the actual market price has already dropped to more than 7 mao.” This is the helpless voice of farmers.
In September this year, the state lowered the listed purchase price for temporary corn storage for the first time in 7 years, from 1.12 yuan/jin last year to 1 yuan/jin. Influenced by market expectations of adjustments to the temporary corn purchase-and-storage policy and other factors, the corn market purchase price fell rapidly and has gradually aligned with low international prices.
Corn is the most seriously oversupplied among the three major staple grains. Li Guoxiang, a researcher at the Rural Development Institute of the Chinese Academy of Social Sciences, told the Shanghai Securities News reporter that the pattern of corn oversupply is caused on the one hand by domestic overcapacity and on the other by the substitution effect of imports of low-priced foreign coarse grains. Because the three major staple grains are regulated by tariff quotas, their direct import volume is not large, roughly 3 to 5 million tons, but imports of substitute coarse grains such as sorghum and barley exceed 10 million tons, affecting domestic corn stocks.
“In the past few years, domestic grain prices were relatively high, and society's high price expectations also mobilized farmers' enthusiasm for developing agricultural production; in addition, the state encouraged the cultivation of new entities, and many large households and capital invested in developing agriculture, leading to the current severe overcapacity.” Li Guoxiang said.
On one side, capacity and imports are high; on the other, market transactions are sparse. At the state temporary-storage corn auction held from October 22 to 23, only 2500 tons out of the planned 5.2971 million tons were sold, with a transaction rate of only 0.05% and an average transaction price of 2370 yuan/ton. Wang Cheng, an analyst at Guolian Securities, said in a research report that under the pressure of high inventories and high output, China's corn prices may continue to decline.
Both prices and structure face adjustment
This year's shrinking grain prices may accelerate the pace of reform of the industry's price mechanism and industrial structure adjustment. The “Several Opinions on Advancing Price Mechanism Reform” released this month makes clear that China should coordinate the use of both international and domestic markets, pay attention to the role of the market in forming prices, and let agricultural product prices be mainly determined by the market. Differentiated support policies should be implemented for different varieties, the “amber box” support policy should be adjusted and improved, and the scale and scope of implementing the “green box” support policy should be gradually expanded.
Last year, China abolished the temporary purchase-and-storage policies for cotton and soybeans and implemented target price subsidies, providing a reform direction for support policies for other agricultural products. Chen Jia, an analyst at Changjiang Securities, believes: “Since the beginning of this year, the state has repeatedly emphasized improving the price formation mechanism for agricultural products, and it is expected that the state's temporary corn storage policy will soon be adjusted.”
On the 21st of this month, Xu Kunlin, director of the Price Department of the National Development and Reform Commission, said at a press conference held by the State Council Information Office on matters related to advancing price mechanism reform that after liberalizing the tobacco leaf purchase price, agricultural product prices are completely formed by the market, with no government pricing items. However, liberalization does not mean the government will not intervene; various means and measures must be adopted to stabilize agricultural production.
Li Guoxiang predicts that for some time in the future, the state will adopt stable policies for the prices of wheat and rice, while the temporary corn storage price may fall further next year, and temporary purchase-and-storage policies for other agricultural products may be abolished. “As for how the subsidy system should work after abolition, the central government is still conducting research across the country to formulate it.” He said.
Behind the price reform is an adjustment of the planting structure of the entire industry. In the past few years, there has been irrational resource allocation in China's crops, with cultivation mainly concentrated on a few varieties. In the future, corn planting in ecologically fragile areas will be gradually reduced, multiple grain rotations will be adopted, and variety diversity and balance will be increased. In addition, the planting structure will be adjusted through price subsidy policies to reduce excess capacity.
Deep processing and feed see benefits
Falling grain prices have also given some downstream enterprises hope. At present, most downstream deep-processing enterprises such as corn processors are still in a state of loss or suspension, with low operating rates. Changjiang Securities believes that improvements on the cost side may trigger short-term elasticity in performance, and downstream enterprises in the food and beverage industry that use corn, wheat, soybeans and other items as main raw materials will directly benefit from the cost improvement brought by falling raw material prices.
Researchers at Guotai Junan Futures [Weibo] believe that because corn starch prices have fallen, the price gap between white sugar and starch sugar continues to widen, giving starch sugar a substitution advantage; in addition, falling starch prices have gradually given domestic starch a price advantage for export, which may boost starch demand.
However, the corn deep-processing industry itself is in a state of overcapacity, and whether productivity can be improved still depends on downstream demand. Industry experts point out that the deep-processing industry has suffered serious losses this year, so the key is whether exports can improve profitability or whether product innovation can be found.
In addition, downstream forage production may be the future development direction of the industry. Li Guoxiang pointed out that China's pork consumption is already saturated, while future domestic consumption of beef, mutton and dairy still has room for growth, which creates demand for forage. “China now has relatively large import demand for forage, while corn output is severely excessive. Silage corn and similar crops should be encouraged, harvested as feed when the corn is half grown, to absorb this part of the capacity.”
Since the third quarter, prices of the three major domestic staple grains have fallen steadily. According to statistics, corn saw the largest drop, with the purchase price falling from the year's high of 2279 yuan/ton to 1980 yuan/ton, a decline of 13.1%; the wheat purchase price fell from the year's high of 2564 yuan/ton to 2274 yuan/ton, a decline of 11.3%; and the early rice purchase price fell from the year's high of 2720 yuan/ton to 2595 yuan/ton, a decline of 4.6%.
Both imports and output grow
“The state purchase-and-storage price for corn is now 1 yuan/jin, but the actual market price has already dropped to more than 7 mao.” This is the helpless voice of farmers.
In September this year, the state lowered the listed purchase price for temporary corn storage for the first time in 7 years, from 1.12 yuan/jin last year to 1 yuan/jin. Influenced by market expectations of adjustments to the temporary corn purchase-and-storage policy and other factors, the corn market purchase price fell rapidly and has gradually aligned with low international prices.
Corn is the most seriously oversupplied among the three major staple grains. Li Guoxiang, a researcher at the Rural Development Institute of the Chinese Academy of Social Sciences, told the Shanghai Securities News reporter that the pattern of corn oversupply is caused on the one hand by domestic overcapacity and on the other by the substitution effect of imports of low-priced foreign coarse grains. Because the three major staple grains are regulated by tariff quotas, their direct import volume is not large, roughly 3 to 5 million tons, but imports of substitute coarse grains such as sorghum and barley exceed 10 million tons, affecting domestic corn stocks.
“In the past few years, domestic grain prices were relatively high, and society's high price expectations also mobilized farmers' enthusiasm for developing agricultural production; in addition, the state encouraged the cultivation of new entities, and many large households and capital invested in developing agriculture, leading to the current severe overcapacity.” Li Guoxiang said.
On one side, capacity and imports are high; on the other, market transactions are sparse. At the state temporary-storage corn auction held from October 22 to 23, only 2500 tons out of the planned 5.2971 million tons were sold, with a transaction rate of only 0.05% and an average transaction price of 2370 yuan/ton. Wang Cheng, an analyst at Guolian Securities, said in a research report that under the pressure of high inventories and high output, China's corn prices may continue to decline.
Both prices and structure face adjustment
This year's shrinking grain prices may accelerate the pace of reform of the industry's price mechanism and industrial structure adjustment. The “Several Opinions on Advancing Price Mechanism Reform” released this month makes clear that China should coordinate the use of both international and domestic markets, pay attention to the role of the market in forming prices, and let agricultural product prices be mainly determined by the market. Differentiated support policies should be implemented for different varieties, the “amber box” support policy should be adjusted and improved, and the scale and scope of implementing the “green box” support policy should be gradually expanded.
Last year, China abolished the temporary purchase-and-storage policies for cotton and soybeans and implemented target price subsidies, providing a reform direction for support policies for other agricultural products. Chen Jia, an analyst at Changjiang Securities, believes: “Since the beginning of this year, the state has repeatedly emphasized improving the price formation mechanism for agricultural products, and it is expected that the state's temporary corn storage policy will soon be adjusted.”
On the 21st of this month, Xu Kunlin, director of the Price Department of the National Development and Reform Commission, said at a press conference held by the State Council Information Office on matters related to advancing price mechanism reform that after liberalizing the tobacco leaf purchase price, agricultural product prices are completely formed by the market, with no government pricing items. However, liberalization does not mean the government will not intervene; various means and measures must be adopted to stabilize agricultural production.
Li Guoxiang predicts that for some time in the future, the state will adopt stable policies for the prices of wheat and rice, while the temporary corn storage price may fall further next year, and temporary purchase-and-storage policies for other agricultural products may be abolished. “As for how the subsidy system should work after abolition, the central government is still conducting research across the country to formulate it.” He said.
Behind the price reform is an adjustment of the planting structure of the entire industry. In the past few years, there has been irrational resource allocation in China's crops, with cultivation mainly concentrated on a few varieties. In the future, corn planting in ecologically fragile areas will be gradually reduced, multiple grain rotations will be adopted, and variety diversity and balance will be increased. In addition, the planting structure will be adjusted through price subsidy policies to reduce excess capacity.
Deep processing and feed see benefits
Falling grain prices have also given some downstream enterprises hope. At present, most downstream deep-processing enterprises such as corn processors are still in a state of loss or suspension, with low operating rates. Changjiang Securities believes that improvements on the cost side may trigger short-term elasticity in performance, and downstream enterprises in the food and beverage industry that use corn, wheat, soybeans and other items as main raw materials will directly benefit from the cost improvement brought by falling raw material prices.
Researchers at Guotai Junan Futures [Weibo] believe that because corn starch prices have fallen, the price gap between white sugar and starch sugar continues to widen, giving starch sugar a substitution advantage; in addition, falling starch prices have gradually given domestic starch a price advantage for export, which may boost starch demand.
However, the corn deep-processing industry itself is in a state of overcapacity, and whether productivity can be improved still depends on downstream demand. Industry experts point out that the deep-processing industry has suffered serious losses this year, so the key is whether exports can improve profitability or whether product innovation can be found.
In addition, downstream forage production may be the future development direction of the industry. Li Guoxiang pointed out that China's pork consumption is already saturated, while future domestic consumption of beef, mutton and dairy still has room for growth, which creates demand for forage. “China now has relatively large import demand for forage, while corn output is severely excessive. Silage corn and similar crops should be encouraged, harvested as feed when the corn is half grown, to absorb this part of the capacity.”