Pain points in the corn deep processing industry urgently need to be resolved
The corn deep processing industry is in dire straits. In August this year, in order to reduce the pressure of corporate losses, most starch processors, including COFCO, Yihai, and Pengcheng Biochemical, began shutting down and cutting production, and most are currently either fully or half shut down.
According to statistics, Heilongjiang Province has 58 corn processing enterprises, of which 28 are above designated size, with an annual processing capacity of nearly 10 million tons. According to statistics from the Heilongjiang Province Corn Deep Processing Industry Association, since the start of last year's wet grain period, the entire province's corn deep processing industry has been operating at a loss, and many enterprises have been unable to start operations.
This year, apart from corn oil, which rose, the other three by-products fell sharply, with corn husk and corn meal prices nearly halved. Taking the Shandong region as an example, since July, corn starch prices have fallen sharply from 2,900 yuan/ton in June to 2,500-2,600 yuan/ton, and processing enterprises are losing 350-400 yuan/ton.
Deep processing enterprises have made important contributions in digesting grain sources, promoting farmers' income growth, and increasing the use value of moldy corn, but affected by the procurement and storage policy, corn market prices have become distorted, and the deep processing industry has long been upside down relative to corn prices. Some raw material demand has had to turn to foreign sources, with imports of corn substitutes such as sorghum and cassava reaching more than 20 million tons, and there is a trend of continued growth. To a certain extent, this has also slowed the process of de-stocking corn.
The focal point of contradiction in the state's digestion of old grain has accordingly shifted. Previously, considering food security, China had always been relatively cautious in developing fuel ethanol, a downstream corn processing industry. Now, under the current situation of a phased oversupply of corn, the inventory that has already formed urgently needs to be handled.
China began developing fuel ethanol using corn and other feedstocks in 2000, and in Northeast China, Henan, Anhui and other places it is added to gasoline at a ratio of 10%, consuming about 4.5 million tons of corn each year. Some analysts believe that at the current stage, the demand for corn from ethanol should be released without restriction. At the same time, specific analysis and specific solutions should be applied to the "pain points" in the production and operation of processing enterprises.
Market researchers pointed out that solutions can be pursued from the following four aspects. First, launch targeted special subsidies such as transportation fees to encourage deep processing enterprises to prioritize purchasing surplus grain from farmers in areas with a relatively high proportion of moldy kernels. Second, appropriately relax the auction subsidy standards for Northeast enterprises and improve the efficiency of subsidized auctions. According to the subsidy measures issued in July 2014 for Northeast corn deep processing enterprises bidding to process corn from national temporary storage, if an enterprise's actual procurement volume is lower than two months' processing volume, it may not receive the subsidy. Relevant personnel in Heilongjiang Province's grain system suggested that auction subsidy standards could be appropriately relaxed, such as setting the subsidy threshold based on about 20 days of an enterprise's processing volume, so as to further mobilize enterprises' enthusiasm to enter the market. Third, explore a commercial reserve model in which processing enterprises participate in market-support procurement. The specific approach is that processing enterprises purchase corn at the national market-support price during the wet grain period, compress the whole year's purchase volume into the wet grain period, and by the dry grain period the enterprises independently consume this part of the inventory. The state provides certain subsidies based on the minimum of the enterprise's actual processing volume during the dry grain period (May to October) and the storage volume during the wet grain period, including procurement fees, storage fees, drying fees, and grain storage interest subsidies, but the overall amount is lower than the current national market-support cost. If this model is adopted, a strict regulatory mechanism needs to be established to ensure that enterprise inventory reserves are fully used for self-processing and to prevent them from fraudulently obtaining state subsidies. Fourth, implement export tax rebates for corn deep processing products to improve the export competitiveness of corn deep processing enterprises.
In the long run, market participants believe that the temporary storage policy should be improved and a target price subsidy system should be actively explored. On the one hand, under the premise of ensuring farmers' interests, the temporary storage price should be set flexibly. On the other hand, close attention should be paid to market prices and the regulatory mechanism should be improved, especially during periods when corn prices rise rapidly. Once the market price reaches or exceeds the temporary storage price, open-ended purchasing should be stopped immediately to avoid "circling grain" being used to fraudulently obtain state subsidies.