Northeast China Rice Prices Stay Firm at High Levels, Now Is the Right Time for Farmers to Sell Grain

After a year of hard farming, golden rice ears represent the joy of a bumper harvest. Selling grain for a good price is the fondest wish of every farmer. According to relevant national statistics, among the various grain crops planted in 2015, rice had the best planting returns, especially rice in Northeast China, which has shown a steady-to-rising trend since it came onto the market. As of now, the temporary storage warehouses for rice in Northeast China have been open for one month. During this month, supported by the state reserve market-support policy, rice prices in Northeast China have remained firm at high levels compared with indica rice in the south.

⟦NL> The reasons rice prices in Northeast China are steady to strong are as follows: on the one hand, farmers have high expectations for the minimum protective price of 1.55 yuan/jin for late japonica rice, and most hold a wait-and-see, reluctant-to-sell attitude. On the other hand, because this year is the first year of implementing the provincial governor responsibility system for national food security, the warehousing standards for rice are stricter than in previous years. In the early days of the market, traders' intermediary profits were lower than in previous years, and against the backdrop of farmers holding firm on prices and being reluctant to sell, they later had to raise purchase prices. According to statistics, as of November 15, various grain enterprises in 7 major producing areas including Heilongjiang had cumulatively purchased 12.64 million tons of newly produced japonica rice, an increase of 530,000 tons year-on-year; the timing was earlier and the purchasing progress accelerated. The author believes that, under the premise that the state reserve has effectively become the dominant buyer of rice, this is a favorable time to sell grain, for the following three reasons.

State reserve purchasing time advanced for the first time

In previous years, the market-support policy for rice in Northeast China started in early November, but in 2015 the start time was advanced to October 10, about 20 days earlier than in previous years. As of late November, taking Heilongjiang as an example, more than half of the grain depots' rice purchase and storage task had been completed, and some areas had full warehouse capacity or had already shifted to purchasing corn. At the same time, farmers in some producing areas will also face loan repayment problems at the end of November. Therefore, if farmers sell their remaining grain in a concentrated way, market supply pressure will increase, and this will inevitably also push rice prices weaker.

Strong rice, weak milled rice, dampening rice enterprises' willingness to stockpile grain

Since the state implemented the minimum protective price policy for rice, the intention has been to prevent cheap grain from hurting farmers and thereby ensure national food security. The policy has been implemented for 12 years, and it has indirectly pushed up the processing cost of milled rice, gradually drifting away from the marketization of raw grain. From the perspective of rice enterprises, they are now surviving in a narrow space. In addition, China's rice processing industry is in a downturn, and some enterprises, planning for long-term survival, have already begun operating at a loss. In raw grain procurement in 2015, most adopted the strategy of purchasing and processing as they went, and stockpiling a small amount at low prices when appropriate. Some rice enterprises have also said that this year's working capital is tighter than in previous years, and loans from the Agricultural Development Bank are difficult. Therefore, once the state reserve purchasing and storage task is completed in the future, relying solely on the purchasing strength of rice enterprises, the room for rice prices to rise will be limited. At the same time, for farmers, storage costs will not only increase; under the impact of unfavorable weather such as rain and snow during this year's rice harvest period in Northeast China, once storage is improper and the quality of the rice changes, it will also drag rice prices down from stable levels.

Price gap between southern and northern rice widens, making it hard to ship rice later

As the end of the year approaches, under normal circumstances, rice enterprises would mostly go full steam ahead in production. But under the market conditions of "strong rice, weak milled rice" and a peak season that is not prosperous, the future rice market is not optimistic. In particular, in the Jiangsu producing area, which also belongs to japonica rice, due to weather and the impact of relatively poor rice quality, the rice price is 0.1-0.2 yuan/jin lower than at the same period in previous years. The mainstream ex-factory price in the market is only 1.88-1.95 yuan/jin, and the price gap with ordinary round-grain rice from Northeast China is close to 0.3 yuan/jin. The price advantage may cause Jiangsu rice to challenge Northeast rice, and in the future the phenomenon of poor shipment by rice enterprises in Northeast China will become more serious, and demand for rice will also weaken somewhat. In addition, the author has learned that this week some rice enterprises in Northeast China, due to slower milled rice shipments, have lowered the price of round-grain rice by 0.02-0.03 yuan/jin.

In summary: although rice in Northeast China will not experience a cliff-like decline like wheat after the end of temporary storage, from the perspective of the purchasing and storage pattern, the author believes that this is a relatively reasonable time for farmers to sell grain. If the state reserve warehouses become full, the market will lack strong support, and on the basis of stable rice prices, it cannot be ruled out that traders will withdraw from the market and rice enterprises will purchase at lower prices, putting pressure on rice prices and causing later prices to decline.