Corn prices fall, and the declining market is worth watching
"The formation of grain prices should be close to the market while also taking into account farmers' legitimate income. This is a very important principle for the future formation of China's grain prices." On November 4, Chen Xiwen, deputy head of the Central Rural Work Leading Group and director of its office, said this at a press conference held by the State Council Information Office.
In grain price reform, the most closely watched issue at present is the adjustment of corn prices. In September this year, the temporary storage price for corn, which had been in place for 7 years, was lowered for the first time, set at 1 yuan per jin, 0.12-0.13 yuan per jin lower than last year's temporary storage price. Market corn prices also fell from more than 1 yuan last year to 70 or 80 fen per jin.
Since entering November, as the official launch of temporary storage corn purchasing in the Northeast production areas and the frequent holding of related meetings released positive signals, domestic corn market prices have seen a small rebound. But as the agricultural product with the most serious production, supply and marketing contradictions at present, its price is still unlikely to continue rising.
The causes of this corn price adjustment are complex. Chen Xiwen also said that five factors have made the current grain price situation complex. First, China's agriculture itself lacks competitiveness; second, our protection policies have pushed grain prices continuously higher; third, international grain prices have fallen; fourth, the drop in global energy prices has led to lower freight prices; fifth, the strong RMB exchange rate has stimulated grain imports.
As the single crop with the largest planted area in China at present, corn also has the longest industrial chain in the grain sector, and the impact of its price adjustment will be unprecedented in both breadth and depth.
However, "no destruction, no construction," and the pains of reform are often accompanied by rebirth: future planting structure adjustment, the degree of activity of market entities, the healthy development of the corn industry, and even changes in the entire rural production relations may all undergo major transformations as a result.
Inside and outside the Pass, grain farmers wait and hold back sales
On the fourth day after Frost's Descent, almost all corn in Jilin had been harvested. Sitting on the train from Changchun to Siping, outside the window on the raised sloping fields, there were traces left by harvesters everywhere, one by one, lying crookedly against the ground. Occasionally, a few rows of corn stalks could still be seen standing there.
In a red house not far from the village office of Balimiao Village, Lishu Town, Lishu County, Lu Wei, chairman of Lu Wei Agricultural Machinery Cooperative, was busy contacting a stalk baling machine.
"It will be good if we don't lose money this year. I just sold a little, only 75 fen. This year the state purchase price is 1 yuan for first-grade grain at 14 moisture. Now when farmers harvest it, it is 30 moisture, deduct 16 moisture, and deduct 1.5 fen per moisture. You do the math!" Lu Wei rubbed his somewhat frozen hands and continued, "The harvest this year is also not good. There was drought, and if the yield per shang can reach 22,000 jin, that's already good. Last year, one shang could produce at least 24,000 to 25,000." To make up for the losses caused by the drop in corn prices, the cooperative planned to buy a stalk baling machine, perhaps still earning a little money from firewood.
Lu Wei told reporter that since the cooperative was established in 2011, it had been developing well. Including villagers who joined the cooperative with their land, it had reached a scale of 460 shang (hectares) this year. Everyone had originally expected to make some big money this year, but the fall in corn prices caught them off guard.
"Last year one shang left a net profit of 7,000 yuan; this year one shang will lose 2,000 yuan. Last year prices were good and yields were high, so land transfer fees were also high. The contract fee for one shang is 11,000 yuan, seeds and fertilizer cost 4,000 yuan, pesticides, agricultural machinery operation fees, plus land preparation and planting cost 3,000 yuan, and that is already 18,000 yuan. Last year the villagers who rented out their land made money. At 11,000 yuan per shang, I did not have to worry about anything, and those villagers made money. Those who purely rented land to farm definitely lost money!" Lu Wei said.
Lu Wei told reporter that their cooperative was not in a hurry to sell corn and also wanted to wait for the price to see whether it might change.
"Now almost all the villagers in the village are waiting and watching. If someone has a loan and is waiting to sell corn to repay it, then things are quite tight." Lu Wei said that the few in the village selling corn were mostly those working outside, with no one at home to dry it. If it was stored too long, they feared it would heat up and mold, and feared mice would nibble it, so they sold it.
But keeping corn in hand is also not worry-free. Drying requires labor, and storing grain requires space. Now the cooperative rents a warehouse from an old steel plant, and this alone costs several thousand yuan.
The impact of falling corn prices was obviously not limited to people like Lu Wei. After this year's temporary storage price adjustment, corn prices across the national market generally fell, including in areas inside the Pass that do not implement the temporary storage price: Shandong, Henan and Hebei had also fallen to around 80 fen. As China's largest grain crop, corn is grown by many of the country's more than 200 million farming households, so the scope of the impact can be imagined.
At a little after 5 p.m. on October 23, reporter met such a couple by the roadside in Xinshe Village, Laoshe Central Community, Xiangshui County, Yancheng City, Jiangsu Province. At that time they were gathering dried corn kernels with two elderly helpers. On a drying yard more than 200 meters long, golden corn filled the view.
The man was Liu Xuebiao. In early October, their more than 100 mu of corn began to be harvested, and every day they started busy as soon as it was light and did not stop until it was completely dark.
"There is definitely no money to be made this year. Not to mention months of lost work time." Liu Xuebiao said he had just sold more than 10,000 jin of corn at 0.75 yuan per jin. Not counting the labor input of the couple tied to the fields for several months, and only counting the land transfer fee and all inputs for cultivation and harvest, these more than 100 mu of corn barely broke even.
"The wheat has already been planted. Next year's transfer fee will definitely be renegotiated. Everyone knows I did not make money on corn this year, so we will try to lower it a bit." At this time of year it gets dark early, and rural northern Jiangsu already felt chilly, but Liu Xuebiao was still bare-chested.
"It rained a couple of days ago. I heard that the state treasury in the Northeast also began purchasing grain, and prices here have also ticked up a little. We can sell for 2 fen more than when it was just harvested." On November 18, an old farmer in Qiaojiatun Village, Gaomi City, Shandong Province, told reporter that half a month earlier, one could only occasionally see one or two peddlers' vehicles. Corn had been harvested for more than a month, and only about one-tenth had been sold in the village, while in previous years two-thirds had been sold. With freezing weather approaching, peddlers also feared that the grain they bought would not be dry and would heat up and mold in their hands.
Because it is close to Qingdao, there are quite a few feed processing plants of various sizes nearby, but this year feed plants were not buying at full force either. Farmers told reporter that it might be because they thought prices would fall further and feared buying at a high level.
"Dry grain is only 80 fen. Last year when things were good it sold for 1.2 yuan, a drop of 40 fen at once, which is very serious for grain farmers. So everyone is keeping it at home and waiting to see how things develop." This farmer told reporter that in the past two years everything about farming had become expensive, and pesticides, fertilizer and agricultural machinery alone added more than 10 yuan per mu. "Labor has become expensive, and everything else has risen with it. This year mechanical sowing rose by 5 yuan and mechanical plowing rose by 5 yuan. Corn is cheaper, but feed is not cheaper. The chicken feed I buy is 2 yuan per jin, just corn, soybean meal, bran and the like."
From "abandoning land to plant trees" to "reclaiming wasteland to grow grain"
"My home is in the Northeast, on the Songhua River, where there are soybeans and sorghum all over the mountains and plains..." This song, popular across the country, once stirred how many people's longing for rural Northeast China. But now, coming to this black land, what we can see more of is green corn stalks and golden corn after harvest.
Even so, changes in villagers' planting habits also take time. An old farmer in Lishu County told reporter that about ten years ago, for a period, corn prices were also very low. "What did villagers plant? Millet, sorghum, wheat. At that time grain was not worth much, and there was no protective price, so villagers did not value the land much. Some abandoned it, some planted trees, all sorts of things."
In order to protect farmers' interests and prevent "cheap grain hurting farmers," the state introduced the corn temporary storage policy in 2008, after which farmers' enthusiasm for growing corn continued to rise. "Later corn sold for 1 yuan, and villagers valued the land. Places next to forest belts and by ditches were all reclaimed. In the past no one managed them." This old farmer said.
Taking Lishu County as an example, the corn area has expanded considerably over the years. Of the county's 3.98 million mu of cultivated land, 80 to 90 percent of plots are currently planted with corn. "Originally soybeans accounted for a certain share, but now soybeans are basically gone." Wang Guiman, director of the Lishu County Agricultural Technology Extension General Station, told reporter.
The national corn sown area has also shown a year-by-year growth trend. According to data from the China Statistical Yearbook, China's corn planting area was less than 30 million hectares in 2007, and by last year that figure had increased to more than 37 million. Especially in the Northeast, under the impact of imported soybeans, the area of domestic soybeans fell sharply, and most of the freed-up land was planted with corn.
At the same time, various favorable production factors also came into play. Climate, policy, science and technology, and yields were also high. It is understood that in the past 10 years, China's corn output grew at an average annual rate of 5.2%, with cumulative growth of 65% over 10 years. Ten years ago China's annual corn output was 130 million tons, while in the past two years corn output has consistently been above 210 million tons.
At the same time, inventories were also continuously increasing. Xi Yinsheng, chief analyst for corn whole-industry-chain information analysis at the Ministry of Agriculture and director of the Macroeconomic Research Office of the Ministry of Agriculture Rural Economic Research Center, told reporter that in 2012-2013 temporary storage purchased more than 30 million tons, in 2013-2014 nearly 70 million tons, and in 2014-2015 more than 80 million tons. Over three years, 180 million tons were purchased, and so far only more than 30 million tons have been sold, with the temporary storage surplus alone reaching 150 million tons.
While domestic corn was enjoying a bumper harvest, international corn was also in a state of surplus, and prices kept sliding. U.S. corn fell from more than 8 dollars per bushel (about 50 jin) in 2012 to less than 4 dollars now. In less than three years, the price fell by more than half.
Domestic corn prices, however, kept rising all the way because of temporary storage protection. Starting in 2008, the corn temporary storage price rose from 74 fen at the beginning to 1.13 yuan last year, reaching a historic high. In Shandong and other places, corn circulating on the market last year even sold for as high as 1.4 yuan per jin.
At this point, the temporary storage mechanism aimed at preventing cheap grain from hurting farmers began to show "blockages." Because from this moment on, what temporary storage supported was no longer the bottom of the market price, but the inverted price gap between imported and domestic corn.
Customs data show that China's corn imports began to surge in 2010, jumping from 84,000 tons in 2009 to 1.573 million tons. After that they rose for three consecutive years, reaching a peak of 5.2 million tons in 2012. Although they have fallen back in recent years, they have remained above 2.5 million tons.
Voting with their feet for raw material demand was not limited to the choice between domestic and imported corn. Because corn has quota restrictions while sorghum, barley and cassava do not, many enterprises imported these substitutes.
According to the National Grain and Oils Information Center, in the first quarter of 2015 China imported a total of 5.32 million tons of sorghum, DDGS (distillers dried grains with solubles) and barley, up 85% year on year. In 2014/15, import volumes reached 8.5 million tons, 4.5 million tons and 7 million tons respectively, with the three major categories totaling 20 million tons, estimated to be able to replace 14.33 million tons of corn.
"In fact, it is likewise a shock to the domestic corn industry." Xi Yinsheng said, "Add to that the fact that we have so much inventory and still cannot sell it because the price is too high and enterprises cannot accept it. This forces price adjustment, because we cannot keep purchasing like that forever."
A huge "stomach" with indigestion
At around 2 p.m. on October 28, on the main street of Shijiabaozi Town in Lishu County, where grain processing enterprises are relatively concentrated, a few large trucks transporting corn could occasionally be seen, and some crushed corn kernels were scattered sparsely on the ground.
Although it was the season for opening warehouses to purchase grain, the vast majority of enterprises were still in a state of shutdown or semi-shutdown. The scene of out-of-town traders setting up points to purchase corn was also not seen, and the entire processing area and villages seemed a bit deserted.
In the warehouse of Xintianlong Liquor Industry, several workers were shoveling corn down from a large truck, while a few peddlers stood nearby chatting, with their hands tucked in their sleeves waiting to collect money.
"We started weighing on October 19. At that time it was 1,860 yuan per ton for 14 moisture; now it is 1,840. For 30 moisture it is 0.7375 yuan." Wang Shaogui, head of the purchasing department at Xintianlong, told reporter that his company produces anhydrous alcohol, and the main raw material is corn. Three tons of corn can produce one ton of alcohol, and in a year it can consume 900,000 tons of corn.
"Compared with last year, corn prices are much cheaper. Last year when weighing began, the highest was 2,200 yuan per ton, and at roughly the same period it was in the range of 2,150 to 2,160." Wang Shaogui said, "Now although costs are lower, the prices of output products have also fallen. We produce alcohol, and there is also a by-product, feed, DDGS. This now sells for only 1,250 to 1,300 yuan per ton, while last year when things were good it sold for 2,600. The difference is too big. Otherwise, why would so many enterprises have shut down!"
Wang Shaogui has long dealt with corn purchasing and understands the market situation relatively well. He told reporter, "Take North China, for example, places like Shandong. Local grain is enough for deep processing there. So trade cannot be done now. Now some trade has gone to a portion of the breeding industry, the piglet feed, little piglets, just like people drinking milk powder, must use some new grain, and high-quality grain. Some traders do this."
Because corn prices are inverted between the north and the south, large-scale trade scenes have not been seen in Lishu for years. "Shipping corn from the Northeast to North China costs about 150 yuan per ton, and moreover it is still inverted now. Over in Shandong, the purchase price is only more than 1,700 yuan per ton. As villagers say, 'there is no gap.' If you have no price difference, you cannot do trade." Wang Shaogui said.
From starch used in ham sausages to the raw material for extracting monosodium glutamate, to glucose and alcohol... Today corn has even broader uses, and it has long since ceased to be the era of coarse cornmeal and steamed corn bread. So how much corn can we actually consume in a year?
Xi Yinsheng told reporter that after calculating all kinds of consumption, domestic corn consumption is about 180 million tons per year. Compared with production capacity of 210 million tons, in recent years there have been an extra 30 to 40 million tons each year. And the reason why various contradictions have been so prominent this year is also related to the overall economic situation.
In the grain sector, corn has the longest industrial chain and relatively large room for added value. But precisely because the room is large, its elasticity is also large, and it is more obviously affected by the economic situation.
Xi Yinsheng told reporter that before 2012 the corn supply and demand situation was basically balanced, slightly tight. But starting in 2013, it coincided with a macroeconomic downturn, and corn demand also fell. At that time corn output was still increasing, so the entire supply-demand relationship changed markedly, and a serious phased oversupply appeared.
"A large part of corn is used for feed consumption, which is closely related to the development of the entire livestock industry. In recent years, affected by avian influenza and with hogs exactly at the low point of a fluctuation cycle, the two factors combined, the feed industry's demand for corn gradually declined." Xi Yinsheng said that the consumer demand for corn deep processing is even more closely related to the economy. Corn deep processing involves roughly several thousand products, many for industrial use, and many directly for the food sector. At present, this part of demand has also shrunk markedly.
Insufficient consumption, plus the impact of foreign corn and corn processing products, has made life difficult for domestic corn processing enterprises as well.
From 2013 to 2015, while corn inventories kept increasing, the corn processing industry was also constantly reshuffling. Some small enterprises had already been shut down for several years, while some large enterprises persisted. Industry experts say that judging from the current operating rate, the national corn deep processing industry has at least 40% overcapacity, and more enterprises will be eliminated or merged in the next step. The industry has entered a period of accelerated consolidation.
A chain reaction triggered by a single kernel of corn
Corn prices have been lowered, the environment is different, and every person and every link needs to rethink.
"If you make money, you can spend a bit more! I had planned to buy a car this year after finishing up and selling the corn. Looking at it now, forget it, I will just ride a motorcycle!" When reporter was interviewing in Lishu County, a young farmer in a green cotton coat said this to reporter.
Pulling the green cotton coat tightly around himself and squatting by the wall, he said, "How can young people not have heavy burdens? The elderly are old and cannot work, so they just plant a bit of land. Even if grain is worthless, what other source of income is there? And there are children. Children cost so much money year after year. We still have to keep going. What can we do? Just tighten our belts a little."
There is still a long time from now until next year's production, and no one knows what corn prices will be like. Lu Wei also did not feel very sure.
"Now they say there is too much corn. What should we plant? Our area has always planted corn, soybeans are very few, sorghum none, and then a bit of rice. Although corn prices are low, the grain is easy to sell, at least there is somewhere to buy it."
Lu Wei said they were preparing to do some deep processing, grow some green products, and then press some soybean oil. "Our soybeans have a low oil yield, but once they reach green standards the price can be higher. For example, this year the whole wheat flour we milled from wheat we grew sold for 10 yuan per jin, and the market was okay. Now villagers also attach more importance to their own health, just like what we call 'safety on the tip of the tongue.'" Lu Wei said, "Next year the land contract fee will definitely be lower."
Li Fengyu, chairman of Renfa Modern Agricultural Machinery Cooperative in Keshan County, Qiqihar City, Heilongjiang Province, also told reporter that next year, apart from special varieties, they would no longer plant ordinary corn.
Renfa Cooperative planted 36,000 mu of corn, and this year's harvest was good, averaging 1,400 jin per mu. "Last year we began adjusting the planting structure, growing some potatoes, soybeans and miscellaneous beans, shifting toward green and organic, including sweet corn and waxy corn." Li Fengyu said, "Next year we want to expand planting and grow some high-efficiency crops such as vegetables."
Li Fengyu said that in the process of adjusting the planting structure they also wanted to do some industrialized things, but there were still some difficulties to overcome.
"For example, if we grow potatoes and process them, we need storage and equipment; for example, if we develop livestock farming and grow silage corn, we need silage pits, and to raise cattle we need barns. The most important thing is water conservancy. No matter what you plant, infrastructure construction is indispensable. This is the key." Li Fengyu said.
Pan Longtian, deputy director of the Xiangshui County Agriculture Commission in Yancheng City, Jiangsu Province, also told reporter that according to what they knew, the wheat planting area in Xiangshui County had not decreased this year, and there had been no abandonment of land due to excessively low grain prices. The key now is how to accelerate structural adjustment and let farmers know what they can switch to next year.
"At present the benefits of rice planting are still decent, but converting corn land to rice involves high input costs and great transformation difficulty. The county is currently guiding farmers to develop high-efficiency planting and breeding, adjust operating mechanisms to carry out joint plowing and joint planting, organize on-site crushing and returning of stalks to the field to build soil fertility and reduce chemical fertilizer input, and use scale operation and green production methods to lower farmers' grain-growing costs." Pan Longtian said.
The chain reaction brought by falling corn prices is still continuing to ferment.
When reporter was interviewing in Balimiao Village, Lishu County, he met such a farmer. His name was Lu Jiang, and holding a rather small corn cob, he came anxiously to find Lu Wei.
"This year is hopeless. Look, this year my family's little corn is only this big. I did not join the cooperative." Lu Jiang said, "Our thinking is old now, and the technology we grasp is not as new as the cooperative's."
Lu Jiang's family has six people and farms more than two shang of land, making them a fairly typical smallholder. He told reporter that the corn variety he chose this year was also no good, and compared with last year one shang would reduce output by six or seven thousand jin.
"The cooperative gets seeds directly from manufacturers, while we still use the old seeds." Lu Jiang said, "Last year one shang produced 26,000 to 27,000. This year, one reason is that the variety was not well chosen and the pesticide was not applied correctly, so we got insects. Another is lodging. The variety we planted was not wind-resistant; as soon as the cob formed and the wind came, it was shaken down."
Lu Jiang's eyes were red. He said that a few years ago he felt he farmed quite carefully, but this year, looking at it, he felt discouraged.
"Now corn is only a bit more than 70 fen, no comparison with last year. Last year the lowest also had to reach 1 yuan. I have nothing to do today, so I came over to walk around. I said that if things do not work out this year, I will have to join the cooperative too!" Lu Jiang said.
Lu Jiang's thinking provided evidence for the view of Wang Guiman, director of the Lishu County Agriculture Bureau. Wang Guiman felt that this year's fall in corn prices was not entirely a bad thing, and for agricultural transformation and upgrading it might even be an opportunity.
"Why do I say that? On the one hand, for villagers who farm, the impact is certainly relatively large. In the processing enterprise sector, there can be an opportunity to enter market competition. There is also another point: agriculture may develop in a more large-scale direction." Wang Guiman said that previously, under market-support conditions, farmers could gain a lot just from their own bit of land, and they did not want to give it up to others. For large-scale land operation, this was a restrictive process.
Wang Guiman has always paid close attention to changes in rural areas. He said that over the years many highly capable people in the village had either gone away for education or gone into business, all leaving. The remaining farmers were required to be good at everything: technically capable and also good at management, which was relatively difficult.
"Our economic development still requires division of labor." Wang Guiman said that although corn prices fell this year, large households and cooperatives that contracted land at high levels would suffer relatively large losses. But from the current point of view, these new types of operating entities, with their specialized division of labor, are still much better than single households.
"Some do agricultural machinery, some do sales, at least there is a relative division of labor." Wang Guiman said, "This year corn prices have come down. Because individual households have few plots, unit benefits are low, so it is possible they will give up the land and hand it to large households. What are large households thinking now? Through integration, because one or two shang may not be profitable, 5 shang may be somewhat profitable, and 10 shang may yield considerable profit. Seen this way, it is an accelerating process for advancing large-scale land operation. Of course, it does not necessarily have to be land transfer. The land can still belong to the farmers, but socialized services are unified and production standards are unified. Only by passing this standardization issue can they venture into the market."
People are the most active factor in productivity. Wang Guiman told reporter that previously in Lishu a day's work paid 10 yuan or 20 yuan, but now it is 100 yuan, 200 yuan, even 300 yuan. Labor costs have already changed greatly.
"In recent years, including our mechanization and science and technology, all aspects have developed very rapidly, and the rural structure has also changed greatly, but from the perspective of production relations it is still a 'small peasant economy.' This kind of production relation is obviously lagging behind the level of development of the productive forces." Wang Guiman believed that this corn price adjustment may accelerate this process of change.
Whether a round of change in rural production relations will occur as Wang Guiman foresees, we cannot know. What can be certain is that after the price decline, everyone in the corn industry chain will calculate an account in their hearts and make their own choices. And these choices will in turn transmit to the entire industrial chain in different ways, and then affect the entire consumer market.
The impact is far from over.
Just as reporter saw in Lishu County, with a hard freeze about to set in, there were few farmers lying idle in the countryside. What kind of seeds will be sown on this black land next year? Only next spring will tell.