Mounting Inventory Makes Stored Grain Hard to Sell, 100 Billion Jin of New Grain Urgently Needs Placement

Right now is an important transition period in the grain circulation sector, as the summer grain purchase wraps up and the autumn grain purchase begins, but many places have recently run into grain storage difficulties.

On October 8, the State Administration of Grain issued a notice, using two “unprecedented” phrases to describe the current grain storage situation: “At present, China's grain inventory has reached a new high; the quantity of grain stored by various grain and oil storage enterprises is unprecedentedly large, and the quantity of state policy grain stored in open-air and simple storage facilities is also unprecedentedly large.”

According to relevant media reports, in some major grain-producing areas, the dilemma of grain being “unable to be auctioned off, unable to be allocated, and unable to be sold” has already appeared. In Heilongjiang, it is expected that there will be a warehouse capacity gap of 120 billion jin this autumn.

At a time of tight warehouse capacity, auctions of already-stored grain are still difficult to carry out. According to the results of the state reserve Heilongjiang corn auction held on October 9, the actual transaction rate was only 1.44%.

One Province's Storage Gap Reaches 100 Billion Jin

According to the latest statistics from the State Administration of Grain, China's summer grain output hit a new high this year, reaching 282.1 billion jin, an increase of 8.9 billion jin year-on-year. At present, the peak summer purchase season has basically ended, while the autumn grain purchase has begun. As of September 30, 6 major producing areas including Jiangsu had purchased a cumulative total of 2.9 billion jin of mid-to-late indica rice, an increase of 800 million jin year-on-year.

But where the new grain can be stored once it comes in has always been the “top priority” in the grain circulation chain.

Data show that in 2014 the national grain output reached 607 million tons, while the quantity of commercial grain was 398 million tons. By comparison, a huge grain storage capacity gap has emerged, and among the major producing areas, the Northeast is the most severe. Heilongjiang's grain department revealed that in the 2014-2015 grain purchase year, the province's grain purchase volume and policy grain purchase volume both hit historic highs, inventory increased substantially, the whole province's inventory was full to bursting, and the situation for safe grain storage was grim.

According to media reports, at the Qiqihar direct warehouse of Sinograin Heilongjiang Branch, the 140,000-ton warehouse capacity had no spare space at all. In order to store more grain, multiple open-air steel-structured “thousand-ton granaries” and flat warehouses for grain storage were also built inside the depot. All 64 depot points of Sinograin Heilongjiang Branch had long been “full of grain,” and many direct warehouses had even reached saturation several years earlier. Moreover, it was not only Sinograin's direct warehouses; the 427 local state-owned grain depots in Heilongjiang Province were also already full.

Wang Guofu, director of the Storage Division of the Heilongjiang Provincial Grain Bureau, told the media, “Based on the province's current grain purchase and storage capacity, after deducting inventory, only about 20 billion jin of purchase and storage capacity is available for purchasing autumn grain. Based on a conservative estimate of more than 140 billion jin of new grain to be purchased in the next grain purchase season, there will be a storage gap of 120 billion jin.”

According to the State Administration of Grain's summary, current grain storage problems are mainly concentrated in the following: the contradiction of insufficient warehouse capacity in major grain-producing areas is prominent; in some areas old warehouses are “storing grain while sick”; some enterprises lack safe grain storage equipment and have backward technical measures; in particular, a considerable portion of open-air and simple storage facilities in the Northeast and the Inner Mongolia Autonomous Region have hidden safety production hazards such as fire risks, as well as the risk of autumn condensation and roof-top mold; in some parts of the south, grain stored under outdoor canopies continues to have persistently high grain temperatures, making pest and mold control difficult; in addition, some grain has been stored beyond its proper period.

The inventory problem remains unresolved, while the pressure of autumn grain purchasing has already arrived. According to relevant personnel from Sinograin Heilongjiang Branch, it is expected that this year Heilongjiang Province will still have a large amount of grain entering the state reserve warehouses, including 13 million tons of rice and 22 million to 27 million tons of corn.

Cheap Imported Grain Hits the Domestic Market

New grain faces the predicament of insufficient warehouse capacity, while the stored grain already in warehouses is hard to sell off.

The results of the state reserve Heilongjiang corn auction held on October 9 showed that this auction planned to sell 2.344 million tons of corn, with an actual transaction volume of 33,700 tons and a transaction rate of only 1.44%. Among this, all 2011 corn failed to sell, and the transaction rate for 2012 corn was only 0.08%.

Beyond corn, state reserve rice also faces the same difficulty in auctioning off reserves. “Policy transaction volume is sluggish, and large amounts of rice pile up in state grain depots unsold, which occupies inventory and further affects the market price of rice.” Wang Shutong, an analyst at Zhuochuang Information, told the Daily Economic News, “The state has nearly 80 million tons of rice inventory, while annual output is 200 million tons, accounting for 40%. With such a large inventory unable to be sold, once the new season's grain comes onto the market, the purchase volume at grain depots is limited, and so a large amount of rice circulates in the market, while enterprises do not buy much. Under conditions of oversupply, the market price of rice is not high, and it may even have to be sold at a reduced price.”

In fact, an excessively high grain inventory-to-consumption ratio has always loomed over the grain storage and circulation sector, further affecting the entire industrial chain. According to the rules of the United Nations [Weibo] Food and Agriculture Organization, a ratio of grain inventory to consumption reaching 17% is called the food security coefficient, and according to Ren Zhengxiao, director of the State Administration of Grain, during this year's “Two Sessions,” China's grain inventory-to-consumption ratio is “far above this level.”

What makes the domestic grain situation even more difficult is that, at the same time as “warehouses full of stored grain, stored grain hard to auction, new grain hard to warehouse,” a steady stream of cheap imported grain still berths at China's major ports.

According to an article by Ren Zhengxiao in Qiushi in September, the current international prices of soybeans, corn, wheat, and rice are 1,175 yuan, 923 yuan, 626 yuan, and 1,143 yuan per ton lower than domestic prices, respectively, and this has brought a certain impact to the domestic market. The quantity of grain imports has continued to increase, squeezing out domestic market sales share.