Corn temporary storage policy may usher in new changes

At the 2015 China Rural Development High-Level Forum recently held in Beijing, Cheng Guoqiang, Secretary-General of the Academic Committee of the Development Research Center of the State Council, said at the forum that regarding temporary purchase and storage, he personally advocates that it should be withdrawn as soon as possible. In fact, since the pilot reform of target price subsidies was implemented for cotton and soybeans last year, there have been predictions that corn would become the next variety to undergo the pilot reform of target price subsidies.

On July 10, the Ministry of Agriculture pointed out in the "Summary of Replies to Recommendation No. 1480 of the Third Session of the Twelfth National People's Congress" that for varieties such as corn, soybeans, cotton, and rapeseed, attention should be paid to giving play to the decisive role of the market in price formation. For a time, whether the corn temporary storage policy would be withdrawn and how the relevant policies would be adjusted became the focus of market attention.

Now both the bulls and bears in the market are speculating: has the corn temporary storage policy already reached a crossroads? In fact, the corn temporary storage policy was not adopted because of insufficient corn supply, but was intended to stabilize commodity prices, ensure farmers' incomes, and guide planting. However, after the storage policy was implemented in 2008, the phenomena of high domestic corn inventories and high import volumes became increasingly prominent, which would endanger the domestic planting industry and planting structure.

Industry analysts believe that the market originally expected that after soybeans and cotton shifted from the temporary storage policy to the target price direct subsidy policy, corn would also implement this measure, but in the end the policy effects for soybeans and cotton were not entirely satisfactory, indicating that the corn storage policy should temporarily not shift to the target price system. However, judging from the current situation, even if storage continues, given fiscal pressure and the consideration that temporary storage inventories will ultimately need to be dealt with, this year's corn storage price is very likely to remain unchanged or decline slightly.

But in any case, for the corn market, this will create a suppressive effect. At present, the market basically believes that the state will lower this year's corn temporary storage purchase price, but there is still considerable controversy over the extent of the reduction. It is expected that this year's temporary storage purchase price may be lowered, but the room for reduction is limited. If the purchase price is lowered, it will inevitably have an impact on corn prices. Referring to the extent of the reduction in the temporary storage purchase price, spot corn prices will also experience a similar decline.

Because 70% of corn starch pricing comes from the price of the raw material corn, corn prices have great guiding significance for starch prices. The current weakness in starch futures prices is also affected by the decline in corn futures prices. Therefore, to judge the future trend of starch prices, one must first judge the trend of corn prices. At present, the corn prices of the 1601 contract at 2013 yuan/ton and the 1605 contract at 1979 yuan/ton are based on the earlier market rumor that this year's corn temporary storage purchase price would be lowered by more than 400 yuan per ton.

Corn prices are falling rapidly, and starch production costs are declining. In addition, the market generally worries that the new annual corn temporary storage policy will change, and corn prices may fall further to 1800 yuan/ton or even lower, at which point starch production costs will decline further. In the short term, some starch enterprises in Hebei, Henan, and Shandong have shut down, reducing starch supply in stages, but as the entire market worries that the global economic crisis will deepen further, short-term positive factors are not enough to support a rebound in starch prices, and the road to finding a bottom for starch is long.