China's Corn Stocks May Fall Next Year for the First Time in Six Years
Although Chinese farmers are still keen to plant corn, the growth momentum of China's corn stocks may come to an end. According to the latest attaché report released by the Foreign Agricultural Service of the US Department of Agriculture, China's ending corn stocks in 2016/17 may remain flat or begin to gradually decline. After six consecutive years of growth, China's corn stocks may fall.
Although the Chinese government lowered the corn procurement price from 2,200 yuan to 2,000 yuan per tonne in September, Chinese farmers are still keen to grow corn. The attaché said that despite the support price cut, corn remains attractive to most farmers compared with other alternative crops. Although farmers are unhappy about the lower corn procurement price, the returns from growing corn are still 1,600 yuan per hectare higher than those from soybeans, even after the procurement price cut.
In its November supply and demand report, the US Department of Agriculture unexpectedly raised its 2015/16 China ending corn stocks figure by 23.8 million tonnes, to 114.4 million tonnes. The increase in corn stocks was due to two factors: first, an increase in China's imports of alternative feed grains such as barley and sorghum; second, a downward revision of China's corn feed use data over the past three years. The procurement program caused domestic corn prices to be artificially high, prompting users to seek substitutes for corn.
The attaché said that China's ending corn stocks in 2016/17 may decline because China is allowing corn prices to continue falling while maintaining corn consumption subsidies. In addition to cutting the corn procurement price, the government is also encouraging deep-processing enterprises to consume corn in order to draw down the huge corn stocks, especially those in Northeast China. The governments of Jilin Province, Heilongjiang Province and Inner Mongolia have raised the subsidy for the consumption of state-reserved corn provided to corn deep-processing enterprises from 24-32 yuan to 25-55 yuan per tonne. The attaché said that although the subsidy period has been extended from the originally scheduled October 31 to December 31, industry experts expect the program to be extended again next year. The attaché also noted that government officials have tightened quality management for procured corn. The government has implemented stricter quality standards, restricting state reserve purchases, which has caused corn prices to fall faster.
Falling corn prices and huge corn stocks have led the market to speculate that China might even transform into a major exporter.
US brokerage firm CHS Hedging said that China's corn supply and demand situation remains worrisome, because policy reform may prompt China to supply corn to the international market or limit imports of substitutes. China's corn exports in 2014/15 were only 13,000 tonnes, although in 2006/07 China's corn exports reached as high as 5.3 million tonnes.