When will the rice market emerge from the cold winter? Market sluggish amid sweltering heat
After entering June, temperatures kept rising, and domestic rice sales slowed noticeably. What followed was a decline in daily processing volume at factories and an increasing number of shutdowns for maintenance. Moreover, most factories said that for a long time, rice processing profits had already hit bottom or were in a loss-making state, so how long will this phenomenon last, and what are the main reasons?
The pattern of strong rice paddies and weak rice has long existed
In order to protect farmers' enthusiasm for growing grain and promote the development of grain production, since 2004 the state has implemented a minimum purchase price policy in major rice-producing areas. Over the 10 years of implementation, China's minimum purchase prices for rice paddies have been raised year by year, with early indica rice cumulatively raised by 0.65 yuan/jin, mid-to-late indica rice cumulatively raised by 0.66 yuan/jin, and japonica rice by 0.80 yuan/jin. Although the raising of the minimum purchase price for rice paddies objectively guaranteed the interests of farming households, for deep-processing enterprises of rice paddies, the continuous rise in rice paddy prices kept increasing procurement, storage and processing costs, while the space for processing profits was continually squeezed, and the phenomenon of an obvious inversion between the actual prices of raw grain and rice formed. Some enterprises, in order to ensure market share and retain existing long-term customers, had no choice but to process rice at a loss.
According to the author's understanding, after entering June this year, the operating rate of domestic rice processing enterprises was less than 20%, and individual enterprises with an annual processing capacity of more than 100,000 tons had a daily processing volume of only 1/10 of their daily production capacity, only ensuring the supply and sales of the enterprise's mid-to-high-end rice. Among them, in northern production areas, factories, under pressure from later processing, commonly sold off stockpiled rice paddies. In southern production areas, some rice mills used existing warehouse capacity to participate in wheat purchase and sales work, to ease workers' wages and related expenditures.
Imports have long suppressed domestic rice shipments
According to data from the General Administration of Customs, in April 2015 the whole country imported 330,236 tons of rice through official channels, an increase of 186,458 tons over the previous month, with a growth rate of 129.68%. Compared with the same period of the previous year, it increased by 8,504 tons, with a growth rate of 2.64%, and the monthly import volume touched its highest level since 2013. The above data are all formal import volumes, and do not include smuggled rice. Since imported rice entered the market, the operating conditions of China's rice processing industry have gone from bad to worse, especially as the scope of the impact of imported rice has continuously spread from sales areas to production areas; most rice mills said business was getting harder and harder to do! One main reason causing this phenomenon is that imported rice takes a share of the pie from domestic rice with its low market price. As of this month, taking imported Vietnamese 504 rice at a wholesale price of 3,500 yuan/ton in Foshan, Guangdong as an example, the price gap with ordinary 2014-produced Northeast round-grain rice is 960 yuan/ton, and with high-quality mid-to-late indica rice it is 900-1,100 yuan/ton, showing an obvious price advantage. The relatively large price gap tempts domestic rice and imported rice to be blended to reduce costs and stimulate shipment volume. This phenomenon is especially common in major rice-producing areas, and blended rice in sales-area markets has become the mainstream. The author believes this is not only detrimental to the healthy development of China's rice industry, but also plants a heavy obstacle for the rice market to emerge from the cold winter as early as possible!
Seasonal consumption characteristics are obvious
By convention, June-August each year is the off-season for rice consumption. On the one hand, temperatures in rice sales areas kept rising, and coastal areas entered the plum rain season, with large rainfall and high air humidity, increasing the probability of rice becoming moldy upon exposure to moisture, which brought a certain degree of difficulty to sales and storage. To reduce risks, distributors stocked cautiously and mostly maintained low inventory. At the same time, as people's living standards improve, ordinary people's dining tables are becoming richer and richer, no longer simply solving the problem of food and clothing, but paying more attention to nutrition and health, and the habit of eating rice as the staple food has changed somewhat. On the other hand, after July, domestic universities, colleges and secondary schools successively began holidays, and market demand may further shrink.
In summary, if the price of rice paddies does not come down and rice prices lack upward momentum, then later competition between domestic rice and imported rice for market share will become increasingly fierce, and it will be difficult for the rice market to emerge from the “cold winter”, and the time to welcome spring will be even longer. The author believes that what the rice industry should do at present is to ensure rice quality and strive to be refined and detailed. Rejecting immediate interests and enhancing brand effect are the only ways to smoothly pass through the rice market's “cold winter”, and to be in an advantageous position in the future reshuffling process of the rice industry, so as not to be eliminated.