Summer Grain Purchase Investigation: Grain Prices Open Low and Move Steadily, Farmers Panic-Selling and Holding Back Both Decline

Grain prices opened low and are moving steadily, enterprises are more rational in purchasing, and farmers panic-selling or holding back are both decreasing

Near noon, at the "Zhongyu contract high-quality wheat" purchasing point in Binzhou, Shandong, 45-year-old Hu Fuhua sits on a tricycle, waiting to sell grain.

With a towel draped around his neck, he wipes the sweat from his face from time to time: "This time I brought 10,000 jin, and this year's wheat is basically all sold." Hu Fuhua lives in Dayinghu Village, Sanhehu Town, Bincheng District, and has transferred over 40 mu of farmland. With favorable weather this year, the yield per mu reached about 1,200 jin.

"This year's wheat price is about the same as last year's; no matter how long you wait, it's still this price." The price Hu Fuhua sold at was 1.33 yuan/jin, about 1 jiao higher than the ordinary wheat market price. As early as 4 years ago, he signed an order purchase agreement with Zhongyu Food Co., Ltd. The company uniformly provides high-quality wheat seeds and promises to purchase at 10% above the market price after yield measurement meets the standard.

Feng Yusheng from Chujia Village, Sanhehu Town, also sold all his remaining wheat at the same price. "This year's yield per mu is more than 1,100 jin, a bit less than last year. The current price is suitable now. If I wait for the price to rise further, it's unlikely!" Feng Yusheng said.

"This year, the opening price of ordinary wheat was around 1.20 yuan per jin, rose to 1.23 yuan midway, and then kept fluctuating between 1.19 and 1.22 yuan/jin, showing a trend of opening low and moving steadily." said Liu Shuxiang, deputy governor of the Agricultural Development Bank of China Shandong Branch.

The stable relationship between grain supply and demand determines the trend of grain prices. Liu Shuxiang analyzed that on the supply side, Shandong Province's summer grain sown area this year was 57.02 million mu, an increase of 900,000 mu year-on-year, and total output was 46.94 billion jin, an increase of 1.66 billion jin year-on-year. Summer grain has again achieved a bumper harvest, and wheat supply is ample. Moreover, many regions have promoted high-quality wheat seeds, and quality has also improved.

On the demand side, purchasing entities in the market are increasingly diverse and their behavior is becoming more rational. In May, the Agricultural Development Bank of China Shandong Branch completed the qualification certification for grain enterprise purchasing loans, certifying a total of 293 enterprises, 4 more than last year, including 119 reserve enterprises, 73 purchase-and-sale enterprises, and 101 leading processing enterprises. There are nearly 1,000 purchasing outlets, basically covering all districts and counties in the province.

"In particular, leading purchasing enterprises and processing enterprises have played a certain role in stabilizing grain prices." said Chen Luning, president of the Agricultural Development Bank of China Binzhou Branch. After gradually forming large-scale purchasing entities, they can make year-round, planned, quantitative purchases according to production needs, ensuring the stability of supply and demand.

"There is also a new situation: for most rural households, selling grain is no longer the only income." Chen Luning said. The diversification of income sources gives farmers more confidence to participate in the purchasing market game, and behaviors such as short-term panic-selling or long-term wait-and-see holding back due to price panic have decreased.

⟦NL> As summer grain purchasing enters the later market period, can grain prices still rise high? Liu Shuxiang said that now whenever he goes to a purchasing point, he advises ordinary people to sell when the grain price is decent. "Try not to gamble on the later market; the possibility of grain prices rising high later is not great. At present, domestic and international grain prices are severely 'inverted.' International grain prices are around 0.85 yuan per jin, and many enterprises choose imported grain, greatly squeezing the room for domestic grain prices to rise."

Order purchasing solves the "difficulty of selling grain"; once planted, farmers know it can be sold, and at a high price

In recent years, during each summer grain purchasing season, some regions have experienced "difficulty selling grain" for various reasons. Some are due to weather causing grain quality to fail to meet purchasing standards; some because brokers roaming fields and villages look down on the grain of small households; some because purchasing outlets are far away and farmers find transport costs too high...

In Binzhou, however, farmers selling grain presents a different scene. There are still many farmers like Hu Fuhua and Feng Yusheng who have signed order purchase agreements with Zhongyu Food Co., Ltd. Zhongyu has developed a 1.05 million mu high-quality wheat planting base locally, implementing order planting, basically covering all townships in Binzhou.

Feng Yusheng began signing an order purchase agreement with Zhongyu Company last year. "Now grain is not only easy to sell and sells at a good price, but more importantly, when planting, you already know it can be sold."

Zhongyu Company is a local leading processing enterprise, with an industrial chain covering breeding, planting, purchasing, processing, catering, non-staple foods, and waste resource utilization. It has a bakery food production line and quick-frozen food production line with annual production capacity of 10,000 tons, processing projects such as edible alcohol and protein feed, and more than 30 mid- to high-end fast-food chains, requiring large-scale high-quality grain sources. In the first five months of 2015, Zhongyu achieved sales revenue of 750 million yuan and net profit of 69 million yuan.

Zhang Zhiqiang, executive deputy general manager of Zhongyu Company, said that contract farming with farmers mainly has two models: one is "three frees and one plus," where the company provides seeds and sowing and harvesting services free of charge, and purchases after harvest at a price 10%-20% higher than the market. The second is "five unifications," namely unified seed supply, fertilization, pesticide use, technical guidance, and harvesting. At present, Zhongyu Company has arranged more than 150 purchasing outlets, covering all districts and counties, greatly facilitating farmers' grain sales.

"The high-quality wheat we promote increases yield by nearly 60 jin per mu compared with ordinary wheat, increasing income by 76.2 yuan." Zhang Zhiqiang said. Binzhou's summer grain output this year is about 1.5 million tons, and commercial grain can account for about 80%, and it is expected that Zhongyu Company alone can purchase 800,000 tons. As of now, the company has purchased 250,000 tons of high-quality wheat, with an average price of 2,600 yuan per ton.

"At the end of last year, the purchase price of high-quality wheat rose to 1.6 yuan per jin, and many flour mills from Hebei and Tianjin came to snap up high-quality grain sources, indicating that market demand potential for high-quality wheat is very large." Zhang Zhiqiang said. To ensure that wheat produced under orders meets standards, the company uniformly provides high-quality varieties such as "Shiluan 02-1" and provides professional technical guidance to farmers throughout the production process.

Both policy-based and market-based purchasing are present, and credit fund supply is sufficient

This year, except for Zaozhuang, Heze, Jining, and Linyi in Shandong Province, no minimum purchase price plan was launched in other areas, with market-based purchasing as the main approach. According to the reporter's understanding, the reason the above four places launched the plan is that they are close to Henan and Anhui, with climates similar to the neighboring provinces, and affected by the climate in the two places this year, wheat quality was poor; in addition, these areas are also on the transition belt from neighboring provinces to the Shandong purchasing market, and wheat prices were also pulled down. According to the market-support price issued by the National Development and Reform Commission and other departments, this year's minimum purchase price for wheat is 1.18 yuan per jin. As of August 10, the Agricultural Development Bank of China Shandong Branch had cumulatively issued 1.52 billion yuan in minimum purchase price loans for wheat, supporting the purchase of 1.06 billion jin of market-support wheat.

Liu Shuxiang said that supplying funds for the grain, cotton, and oil industry is the Agricultural Development Bank's own duty. For central and local reserve grain purchases and protective-price purchases, the Agricultural Development Bank fully supplies funds. But in market-based summer grain purchasing, the Agricultural Development Bank will choose large-scale private purchasing enterprises as strategic clients. "Making such an adjustment is based on consideration of the transformation of grain purchasing entities and the transformation of agricultural development methods." He said that in market-based purchasing, with the emergence of leading processing enterprises and purchase-and-sale enterprises, the profit space of past small-scale purchasing enterprises with wheat purchasing as their sole business is becoming smaller and smaller, and their number will gradually decrease. Large grain purchase-and-sale and processing enterprises have stronger risk resistance, whether facing agricultural production risks or purchasing market risks.

Sun Junjie, senior business manager of the First Client Division of the Agricultural Development Bank of China Shandong Branch, introduced that in response to the increasing diversity of market-based purchasing entities, the Agricultural Development Bank has developed new businesses such as order purchasing and joint purchase-and-sale operations, and made flexible use of loan varieties to meet enterprises' funding needs for purchase-and-sale trade and deep grain processing.

"The direction of credit adjustment also conforms to the direction of agricultural transformation." Liu Shuxiang said. "Large-scale purchasing entities are needed to meet the challenges of the international market. Only by taking the path of high-quality and large-scale agricultural development can we mitigate the impact of the international market on our country's grain prices to the greatest extent."

It is introduced that to ensure purchasing funds are in place in a timely and full manner, the Agricultural Development Bank of China Shandong Branch began preparations in April. As of August 18, the bank had cumulatively issued 9.52 billion yuan in various summer grain purchasing fund loans, a year-on-year increase of 200 million yuan, supporting enterprises in purchasing and storing 10.46 billion jin of wheat, a year-on-year increase of 300 million jin.