Corn temporary storage price cut leaves farmers and enterprises crying losses

Farmers cry compensation, enterprises cry losses

State cuts corn temporary storage price, rippling a pool of water

Reporter Wang Peilian, China Youth Daily (December 03, 2015   page 06)

Recently, Hua Shujun, a large corn grower living in Gaojia Village, Songyuan City, Jilin Province, often goes to the national storage depot near the village to inquire about corn purchase prices and intake conditions.

Besides farming, Hua Shujun also runs a planting cooperative. This year, all more than 60 member households planted corn. A few days ago, some members sold corn with a moisture content of about 26%, at 0.81 yuan per jin.

On November 1, the state officially launched this year's temporary storage corn purchase for the three northeastern provinces and the Inner Mongolia Autonomous Region, one month earlier than the same period in previous years. According to regulations by the National Development and Reform Commission and 3 other ministries and commissions, this year's corn temporary storage price is 1 yuan per jin, down 0.12 yuan per jin from last year. Since the corn temporary storage policy was implemented in 2008, the purchase price has been cut for the first time.

In farmers' words, “last year dry corn with a moisture content of about 14% could sell for 1 yuan and 12 fen per jin, but this year it can sell for at most 1 yuan.” 

In Northeast China, freshly harvested corn has a moisture content of about 30%. “After deducting a few fen for threshing and transport, it sells for less than 8 mao per jin,” Hua Shujun said. Unless they urgently need money, most members of the planting cooperative he belongs to are still storing their harvested corn in their own yards.

Although Hua Shujun knows the state temporary storage price will not change overnight, he still called the members together to discuss waiting another 20-plus days. They calculate that if the state treasury cannot purchase enough grain this year, perhaps after some time corn with 26% moisture content can sell for the price of corn with 24% moisture content, earning a few more fen.

What they do not know is that the corn temporary storage depots in the three northeastern provinces face enormous inventory pressure. In Jilin Province alone, corn inventory in national storage depots is already more than 3 times the normal level.

But the huge inventory has not brought good news to corn deep-processing enterprises. Corn purchase prices that kept rising in previous years made it hard for corn deep-processing enterprises to bear the high production costs, and they either lost money, suspended production, or went bankrupt. In the view of several heads of corn deep-processing enterprises, the 0.12 yuan per jin cut in the corn temporary storage price is a drop in the bucket for enterprises.

Farmers cry compensation, enterprises cry losses. What exactly is wrong with corn prices?

“I never thought planting corn would also lose money”

High per-unit yield, guaranteed harvest despite drought or flood, and most importantly state policy support, these are the reasons Hua Shujun and the farmers in his cooperative chose to plant corn.

In recent years, farmers have indeed benefited from this. From 2008, the corn temporary storage purchase price in the Jilin area was 0.75 yuan per jin, and it rose to as high as 1.12 yuan per jin last year. Close behind the rise in corn purchase prices came the rise in farmers' farming costs. In all areas of Jilin Province, land rent rose year after year. Several years ago, in Gaojia Village, Songyuan City, the best plots rented for 7,000 yuan per shang; this year the rent has risen to more than 10,000 yuan per shang.

This year, Hua Shujun planted 14 shang (140 mu) of corn. The rent per shang was 8,500 yuan, plus spending on seeds, fertilizer, and pesticides, the cost per shang was about 12,000 yuan. Hua Shujun said this does not even include labor costs.

Unfortunately, in July this year, right during the corn heading period, many places in Jilin Province suffered drought. Hua Shujun's corn fields lost nearly half their yield. Normally each shang can harvest more than 20,000 jin, but this year only more than 10,000 jin. Coupled with the cut in the corn temporary storage price, Hua Shujun not only failed to make money this year, but also lost more than 1,500 yuan per shang, “I never thought planting corn would lose money; the more you plant, the more you lose.”

In Jilin, farmers like Hua Shujun who rent land to plant corn and lose money are not few.

At the same time as the temporary storage price was cut, the state raised the quality standards for corn purchases. In previous years, corn with a mold rate within 5% could enter the state treasury, but this year it must be controlled within 2%.

After learning that temporary storage corn had raised its purchase standards, Zhang Yanhua of Dongxing Village, Changling County, Songyuan City, sold her corn one week after bringing it home. She felt that if she continued waiting, the price would not rise, and the mold rate at home might also increase, “if it cannot enter the state treasury, the loss is even greater.”

Cui Lei, supervisor of Huaguan Planting Professional Cooperative in Nong'an County, Changchun, told China Youth Daily that of the cooperative's nearly 30,000 corn-growing households, only one third have sold corn so far. After learning that the standards for corn entering national storage depots had been raised, the usual practice adopted by farmers is to turn over and sun-dry the corn cobs stored in the yards one by one and remove moldy kernels, “it is estimated that in this way the mold rate should be controlled within 2%.”

Although Jilin Province has continuously promoted scientific grain storage in recent years, there are still quite a few farmers who pile corn directly on dirt ground after harvest. According to statistics from the Jilin Provincial Grain Bureau, the average corn storage loss rate among households in the province is about 11.8%.

What should be done with corn whose mold rate is between 2% and 5%? The state stipulates that local governments, in accordance with the requirements of the provincial governor responsibility system for food security and the local responsibility system for food safety, shall organize purchases. Wang Tao, director of the Regulation Division of the Jilin Provincial Grain Bureau, told China Youth Daily that the output of corn with a mold rate in this range in Jilin Province is still being counted, and how to purchase and handle it remains to be discussed.

“I do not know whether normal production can continue next year”

In the 7 years since the temporary storage policy was implemented, although farmers benefited, corn deep-processing enterprises have had a hard time.

The temporary storage policy has led to an inversion between two corn markets. The first is the inversion between domestic and foreign corn prices. Xiao Fei, general manager of a corn deep-processing enterprise, said that at the highest point, the domestic corn price difference was 1,000 yuan per ton higher than the international corn price. This restricted exports of products from corn deep-processing enterprises in Jilin Province. In the past, a large number of corn deep-processing products from Xiao Fei's company were exported to Southeast Asia, Japan, South Korea, and other countries and regions, “in the past three or four years, this part of export orders has disappeared, and customers have been lost.”

The second price inversion is between provinces and regions that implement the corn temporary storage policy and those that do not. At present, the policy is implemented only in the three northeastern provinces and the Inner Mongolia Autonomous Region. “In the past, corn deep-processing enterprises in Jilin also had the advantage of being near raw material production areas; 1 ton of corn could save 150 yuan to 200 yuan, and this price exactly made up for the cost of transporting products to the main southern sales areas,” Xiao Fei said. Now this advantage is also gone.

In previous years during the corn harvest season, Xiao Fei would rush to buy a batch of corn that could not enter the state treasury's temporary storage, “but the quantity was far from enough.” Because the temporary storage price was high, farmers mostly focused on corn quality and strived to sell to the state treasury. Around March each year, it was very difficult for enterprises to buy corn on the market.

“To produce normally, we must go to national storage depots to auction temporary storage corn.” Last year, the purchase price at national storage depots was 2,240 yuan per ton, and it was at least 2,400 yuan per ton for enterprises. Xiao Fei's company could hardly bear such high costs.

Corn deep-processing enterprises in the three northeastern provinces, which no longer have the raw material price advantage, find it very difficult to compete with similar enterprises abroad or even in other domestic provinces.

From mid-August to the end of September this year, the plight of corn deep-processing enterprises in Jilin Province reached its peak. There are 22 corn deep-processing enterprises in the province, most of which suspended production, and some had already gone bankrupt or were in a state of closure.

As a result, in the fourth quarter, Jilin Province implemented subsidies for corn deep-processing enterprises, subsidizing 250 yuan for each ton of corn purchased by an enterprise.

With the subsidy, Xiao Fei purchased a batch of new corn locally at 1,850 yuan per ton, ensuring the enterprise could produce at full capacity in the fourth quarter, “at least not lose money.”

According to Wang Tao, corn deep-processing enterprises in Jilin Province have a total annual production capacity of more than 15 million tons. After the subsidy, 14 enterprises continued to maintain production, with starch products slightly losing money and alcohol products slightly profitable.

Xiao Fei calculated that for an enterprise not to lose money, the factory-gate corn purchase price must be below 1,600 yuan per ton. In previous years, mid-November each year was when corn prices were lowest, and Xiao Fei's company would reserve more than 100,000 tons to 200,000 tons of corn, ensuring supply for more than 20 days to one month.

“Now everyone dares not build inventories again, all buy and use as needed,” Xiao Fei said. At present, the domestic corn market changes too quickly, and many long-term orders are also not dared to be signed. Their enterprise currently has a production capacity of 750,000 tons and had planned to double capacity again in recent years. But in the past 3 years, the enterprise's cumulative losses have reached 200 million. “The larger the corn temporary storage volume, the more deep-processing enterprises lose.”

Whether Jilin Province will continue to subsidize corn deep-processing enterprises next year is currently unknown.

What corn price is actually appropriate

Analysis by several industry experts holds that the state's continuous raising of corn temporary storage purchase prices mobilized farmers' enthusiasm for planting and safeguarded national food security, but it affected supply and demand in the domestic corn market, causing domestic grain prices to be significantly higher than international market prices, corn inventories in main producing areas to remain high, and the fiscal burden to become increasingly heavy.

In the view of Shu Kunliang, deputy director of the Northeast Regional Agricultural Development Research Center, high inventories in main producing areas are a kind of structural surplus. Upstream temporary storage policy causes market distortion, inventories cannot be absorbed, and downstream demand for industrial-use and feed-use corn cannot be satisfied. 

“Under the premise that the state currently cannot sell temporary storage corn at a profitable price, adjustment can only start from the supply side, namely reducing corn planting area,” Shu Kunliang said.

How can corn planting area be effectively reduced? Shu Kunliang believes this requires a large amount of research and calculation, not only on corn prices but also considering other competing crops, such as what the price of soybeans actually is, so that farmers voluntarily reduce corn planting area.

Jilin Province is not only a golden corn planting belt, but also a golden soybean planting belt. Shu Kunliang said that in recent years, high-yield corn replaced low-yield soybeans that also require crop rotation, and soybean planting area shrank sharply.

Data released by the National Bureau of Statistics show that in 2012, corn surpassed rice to become China's largest grain crop. In 2014, national total grain output reached 607.09 million tons, of which corn output was 215.67 million tons.

At present, no one can say clearly what domestic corn price is actually appropriate. Several experts pointed out that corn is a quasi-public product and cannot be fully marketized. What multiple parties are now studying and discussing is the target price of corn, namely a price that takes into account the corn market, other competing crops, and state subsidies.

Shu Kunliang said the state and main corn-producing areas can have a contractual relationship. He and the corn development situation research group he belongs to suggest: the state should clarify how much corn main producing areas need to produce and sign orders with main producing areas. The order quantity must match the corn target price in order to ensure farmers produce the ordered amount of corn. Precise regulation and production should be the trend of future corn planting.

Facing this year's cut in the corn temporary storage price, Jilin Province has opened 901 temporary storage depot points and will continue to arrange more than 200 more. Wang Tao said that opening more temporary storage depot points can both help farmers reduce transport costs and form healthy competition among grain depots, presenting a seller's market and helping farmers sell grain.

In addition, the Jilin Provincial Grain Bureau is also using television publicity and guidance to let farmers know that “1 yuan per jin” is already this year's highest purchase and storage price, hoping thereby to reduce farmers' wait-and-see reluctance to sell.

What should be planted next year? Cui Lei, who has planted corn for 6 years, said that apart from his own 3 shang of land, he will not rent additional land to plant corn. The Nong'an Huaguan Planting Cooperative he belongs to also plans to encourage members to reduce corn planting area and support projects such as greenhouse vegetables, melons, and fruit.

Hua Shujun, who has planted corn for more than 10 years, estimates that land rent should fall next year. He will still plant corn on a large area, “our place is most suitable for planting corn.”