China's Corn Stockpiling Policy to Continue for Another Year
Industry analysts say China will implement its corn stockpiling policy for another year before fully liberalizing domestic corn prices.
The stockpiling policy aims to raise rural incomes, but some market participants point out that this policy has led to high domestic corn prices. Currently China's corn price is about 50% higher than the international market price, forcing domestic feed manufacturers to use imported corn or cheap substitutes instead of domestically grown corn. Market participants had expected the government to scrap corn stockpiling as early as this year. Li Qiang, chief analyst at Shanghai JC Intelligence, said the trend of domestic corn prices will ultimately depend on market factors as well as market prices linked to international market prices, a situation that could emerge as early as 2017.
China's National Development and Reform Commission and the Ministry of Agriculture said last month that the market will play a decisive role in domestic corn prices, marking a change ahead for the government's current stockpiling policy.
Analysts say that although the stockpiling program will continue in the 2015/16 marketing year, the volume purchased will decrease and the corn stockpiling price may also fall, because the government wants to balance the interests of farmers and downstream processors. Analysts say the Ministry of Finance and the National Development and Reform Commission believe the corn support price should be 1,800 yuan per tonne, equivalent to 296.75 US dollars per tonne.
But analysts say the Ministry of Agriculture opposes a sharp cut in the minimum corn purchase price, because it could adversely affect the main corn-producing region in Northeast China. The Northeast accounts for about 40% of China's corn output. Analysts at COFCO Futures say the market widely expects the purchase price for the new-season corn to be lowered, though market forecasts differ on the size of the cut.
Analysts say a lower purchase price will make domestically grown corn more competitive and help the loss-making downstream industry recover. They say the government also plans to reduce the volume purchased by implementing stricter quality standards. JC Intelligence analysts say the lower purchase price could cut imports of corn and corn substitutes by more than 30%, with next year's imports falling to 20 million tonnes, down from 30 million tonnes this year.
In the 2015/16 marketing year, China's imports of corn and corn substitutes have already hit a record high, because overseas prices are cheaper. Corn substitutes include sorghum, corn distillers dried grains and barley, coarse grains that are not subject to quotas.
As the market expects the corn purchase price may be lowered, the January 2016 corn contract on the Dalian Commodity Exchange has come under pressure and moved lower; the contract is currently priced at about 2,000 yuan per tonne, below the current spot price of 2,350 yuan per tonne.