Early Rice Purchasing Accelerates, Rice Market Steady to Firm

According to a survey by the National Bureau of Statistics, in 2015 the national early rice sown area was 5,715.4 thousand hectares, a decrease of 79.5 thousand hectares or 1.4% from the previous year; the national total early rice output was 33.691 million tons, a reduction of 320,000 tons or 0.9%. This was the second consecutive year of decline in early indica rice output since 2013. The decline in early indica rice output has eased the pressure on market supply and provided some support to the early indica rice purchasing market.

Early Rice Supply Pressure Smaller Than a Year Earlier

Statistics from the State Administration of Grain show that as of August 15, grain enterprises of various types in 8 major early indica rice production areas including Jiangxi and Hunan had purchased a cumulative 3.54 million tons of newly harvested early indica rice, an increase of 30,000 tons or 0.85% over the same period of the previous year. Because private enterprises remain rather pessimistic about the later trend of the domestic rice market, their purchasing has been relatively cautious.

Farmers are fairly active in selling. Because early indica rice is eaten in a relatively low proportion, and because localities everywhere are vigorously carrying out the “Five Waters Co-governance” initiative, individual farming households in southern regions have reduced their breeding, which has also lowered demand for early indica rice. As a result, farmers are not very willing to keep early indica rice for their own use.

Local reserves' demand for early indica rice has increased. This year is the first year of the governor responsibility system for food security proposed by the state; while doing a good job in grain production, provinces and municipalities have one after another put forward plans to increase the scale of local grain reserves. Because early indica rice has good storage resistance, it is still favored by purchasing and storage enterprises at the present stage, and the volume rotated in this year is expected to increase somewhat. Because the timing of reserve rotation purchases is fairly rigid under the plan, and grain sources available for purchase in the current early indica rice market are relatively tight, the increase in reserve plans has a fairly strong driving effect on the early indica rice market.

The minimum purchase price plan provides a floor. At the start of early indica rice trading this year, purchase prices in the main production areas were generally below the minimum purchase price of 1.35 yuan/jin. On July 28, Sinograin took the lead in launching the market-support plan in 3 provinces: Anhui, Jiangxi and Hunan, with the launch time the same as last year. Hubei Province launched market-support purchases on July 30, about a week later than the previous year. This is also the third consecutive year that China has launched the minimum purchase price plan for early indica rice. Because the early indica rice market-support price is higher than the market price, farmers' enthusiasm for selling grain has been strengthened; and the launch of the minimum purchase price plan for early indica rice is of great significance for boosting market confidence and stabilizing market price trends.

With output declining, early indica rice purchasing has accelerated; in particular, the increase in purchases by state-owned enterprises means that the grain sources available for purchase in the market have decreased, indicating that the current supply pressure in the early indica rice market will be smaller than in the same period of the previous year, which is conducive to the market stabilizing and rebounding.

The Rice Market Is Gradually Becoming More Active

Although the domestic rice market is under heavy pressure from huge inventories and continuously increasing rice imports, as the weather turns cooler and universities and middle schools reopen one after another, rice demand has gradually recovered recently, and the market has also gradually become more active. It is expected that the rice market will maintain a relatively optimistic trend before the “double festivals.”

Rice demand has rebounded slightly. At present, as universities and middle schools reopen, and with the National Day and Mid-Autumn Festival approaching soon, rice demand will conventionally increase seasonally, driving distributors to increase rice stocking; processing enterprises' enthusiasm for starting operations will therefore also rise somewhat, which in turn will stimulate demand for paddy rice and help the rice market rebound slightly.

Farmers' old rice inventories have hit bottom. In 2014 China had a bumper paddy rice harvest, with total output of 206 million tons, an increase of 2.815 million tons over the previous year, setting a new record high again.

Because farmers were not optimistic about the later market, their enthusiasm for selling was relatively high, and this year's grain stocks fell sharply compared with the same period of the previous year. According to statistics, as of the end of March, when the peak purchasing season ended, grain enterprises of various types in the main mid-to-late rice production areas had purchased a cumulative 68 million tons of newly harvested mid-to-late rice, an increase of 5.34 million tons over the same period of the previous year. This indicates that grain retained in farmers' homes in the same period also decreased correspondingly by more than 2 million tons compared with the same period of the previous year.

As time passed and consumption continued over a long period, by the first half of the year grain stored in farmers' homes had basically been sold out. With their own original inventories exhausted, enterprises could only rely on reserve paddy rice rotation or temporary reserve auctions. And participation in temporary reserve paddy rice auctions results in relatively high transaction prices, generally higher than market prices. For example, at the temporary reserve trading session held on August 26, the actual transaction volume of 2014 japonica rice produced in Heilongjiang was 24,799 tons, with the highest transaction price at 3,230 yuan/ton, the lowest transaction price at 3,070 yuan/ton, and the average transaction price at 3,202 yuan/ton.

Adding freight and certain out-of-warehouse fees, the price actually reaching enterprises is even higher. Higher warehousing costs have a certain boosting effect on rice market prices.

The listing of new mid-season rice may be somewhat delayed. In previous years, by the end of September, southern mid-season rice gradually entered its peak listing period, which could satisfy the paddy rice demand from gradually increasing rice demand in the second half of the year. This year, due to the combined effects of factors such as the El Nino phenomenon and typhoons, southern regions had much rainy weather in August, and temperatures were also lower than in previous years. In some main production areas, the maturity and harvest period of mid-to-late rice may be somewhat delayed compared with the previous year, which will have a certain impact on the listing volume of new mid-season rice before the “double festivals,” and is conducive to a stronger rice market before the festivals.

Under the combined effect of the launch of the minimum purchase plan for early indica rice and the improvement in rice demand, it is expected that before the festivals both the early indica rice and mid-to-late rice markets may show a steady-to-firm trend.