A bumper corn harvest is a foregone conclusion, but market risks warrant vigilance
Golden October is exactly the harvest season in Heilongjiang, and as far as the eye can see there are endless stretches of corn and soybeans. The vast black soil has upheld this region's status as China's largest grain-producing area through its bounty. A reporter recently followed an inspection team from Harbin to Suihua, through Bei'an, past Wudalianchi, as far north as Heihe, then back through Nenjiang, Nehe and Mo Banner in Inner Mongolia, and finally returning to Harbin via Qiqihar, Longjiang and Daqing, a journey of 2,500 kilometers. Through on-site surveys, visits to farming households, seed dealers and grain purchasers, and in-depth discussions with large-scale grain growers, planting associations, state-owned grain depots and processing enterprises, it was learned that the Northern Granary will again welcome a bumper year.
Harvest Better Than Last Year, New Grain Prices Expected to Fall
The inspection team's first stop was Gongjia Village on the Haluo Highway in Bayan County, where the local corn was at the dough stage, with dense plants and plump kernels. Although the tip-blank condition was worse than last year, both the planting area and the growth conditions were fairly ideal, and a bumper harvest was in sight.
In Zhangguoping Tun, Shuangshan Village, Waxing Town, Bayan County, Cui Lijun, who was busy harvesting his own soybeans, told the reporter that this year's soybean harvest was better than last year: last year his family's soybean yield per mu was less than 280 jin, while this year it could reach more than 370 jin.
Cui Lijun's freshly harvested soybeans were immediately transported to the town and sold to a purchaser at 2.27 yuan/jin, while just a few days earlier the price had still been 2.30 yuan/jin. He judged that with the concentrated arrival of new beans on the market, the price would fall further.
Zhu Liping of the Bayan Waxingqiao Small Press Oil Mill also said that this year's soybean growing period had relatively good soil moisture, and per-unit yield would reach 380-400 jin/mu, a relatively large increase over last year's level of 320-350 jin/mu. As for the soybean purchase price, Zhu Liping believed that in the early purchasing period the soybean price would be 2.4 yuan/jin, and would then possibly drop to 2.38 yuan/jin. In 2014, the state abolished the temporary storage soybean purchase policy, and pricing power for domestically produced soybeans returned to the market, leaving soybean prices without a floor of support. Zhu Liping predicted that this year's soybean purchase price might be lower than the same period last year.
In Huanxiling Village, Sifangtai Town, Beilin District, Suihua City, the reporter met villager Song Changgui. His family planted three shang of land, of which more than two shang were corn, and he estimated that this year's corn yield per shang would be 24,000-25,000 jin.
Song Changgui did the accounts for the reporter: for one shang of land, base fertilizer plus topdressing cost about 2,600 yuan, seeds 500 yuan, pesticides 200 yuan, mechanical harvesting 1,100-1,200 yuan, sowing 300 yuan, land preparation 600 yuan, the average local land contract price was 6,000-6,500 yuan, threshing removed 0.15-0.2 yuan per jin, and wet corn had to sell for 0.7 yuan/jin just to break even, while the current new corn price was only around 0.6 yuan/jin. Last year was even worse: because of mold, the corn sold for only 0.4 yuan/jin.
In Nenjiang, because the region had relatively ample rain this year and fewer pests and diseases, a bumper corn harvest was already a foregone conclusion. At present, most of the local corn is of the Deyu variety, which because of its thick skin is generally used to make starch and alcohol. Nenjiang's corn planting area is about 1.2 million mu, with output of about 900,000 tons, and the current purchase price is around 0.75 yuan/jin.
In Zhangwei Town, Hailun City, Ji Jun drove an agricultural three-wheeler to sell his freshly harvested soybeans. More than a dozen purchasers in the town had already opened their scales to buy, and some even had long lines in front of their doors. What Ji Jun was selling was sprouting beans; this year the yield from one shang of land was about 5,000 jin, but he was not satisfied with the price of 2.3 yuan/jin. Because he did not know how the market price would move later, Ji Jun said he might as well sell early.
Corn Dominates Alone, Soybeans Continue to Shrink
Heading north from Harbin, the roadsides were mostly cornfields, with soybean fields scattered here and there among them. Only upon reaching Nenjiang did soybeans become noticeably more numerous. Nenjiang is a famous hometown of soybeans, and the sculpture at the entrance to the city is a string of beads made of "golden soybeans." Sun Tiecheng, president of the county's miscellaneous grain association, is also head of the Nenjiang Chengyi Farmers' Planting Professional Cooperative. He told the reporter that Nenjiang County has 6.6 million mu of cultivated land; this year soybean planting was 3.9 million mu, down 500,000 mu from last year's 4.4 million mu, while corn planting increased to 1.2 million mu. Sun Tiecheng planted 12,000 mu of corn this year, and he said next year it would increase to 60,000 mu. That figure is not even the largest among local large-scale grain growers; someone planted 150,000 mu of corn. Nenjiang's accumulated temperature conditions are actually more suitable for growing soybeans, but because returns are relatively high, corn planting has gradually become popular over the past two years. Sun Tiecheng said he was not worried about selling his corn, and quite a few spot traders, including grain enterprises from Sichuan, had already come to discuss purchases. Based on a yield of 24,000-25,000 jin/shang, after deducting costs, his income from planting corn this year would be 7,000 yuan/shang, equivalent to more than 460 yuan per mu.
Cui Lijun told the reporter that he planted a total of 20 mu of soybeans this year, nearly half less than last year's planting amount, and that this was a common phenomenon where he lived. Three years ago, local soybean and corn planting could still be evenly matched, but now the ratio of soybeans to corn is less than 2:8.
In Nehe, dozens of seed stores almost filled an entire street. The owner of Hefeng Seed Store told the reporter that this year the local corn output and quality were both very good. This corn seed he sold, called Qingyu No. 1, had a yield of 24,000-25,000 jin/shang, and one shang of land needed about 40 jin of seed. Last year he sold about 150,000 jin of seed at a price of 16 yuan/jin. He predicted that next year the figure would exceed 200,000 jin, and the price would correspondingly rise to 17 yuan/jin.
At another store called Beinong Seed Sales Office, the owner Li Shuzhi expressed the same view. This veteran employee, who had just retired from the Nehe Agricultural Bureau, knew soybean and corn planting techniques like the back of her hand. Last year her family sold more than 60,000 jin of corn seed at a price of 15 yuan/jin. Under her guidance, farmers' corn grew very well, and she believed next year's seed sales would rise greatly, with prices likewise rising.
Inner Mongolia's Morin Dawa Daur Autonomous Banner belongs to Hulunbuir City and is separated from Nehe City in Heilongjiang by only one Nenjiang River. It is one of the nation's top 100 grain-producing counties, with more than 8.12 million mu of agricultural planting land. Wang Zhankui, director of the Mo Banner Ganhe Grain Depot, told the Futures Daily reporter that last year the banner's corn planting area was still around 1 million mu, but this year it surged to 3.5 million mu; the soybean area was 5 million mu last year, but this year it fell to 3 million mu.
Wang Zhankui felt that the soybean area would continue to shrink in the future. The local corn planting cost was about 760 yuan/mu, with returns of about 1,040 yuan/mu and profit of 280 yuan/mu, while soybean planting cost was about 490 yuan/mu, with returns of only 100 yuan/mu. To achieve steady growth in grain output, the local government was more inclined to guide farmers to plant more corn; among the crops being replaced, soybeans bore the brunt, and they were at a disadvantage in the "competition for land" with both corn and rice.
Whether it was Sun Tiecheng, Li Shuzhi or Wang Zhankui, all believed that the growth of corn planting area was irreversible, even in some areas more suitable for growing soybeans. However, Cui Lijun believed that if the soybean price could reach 3 yuan/jin, more and more farmers would plant soybeans, because compared with corn, soybean planting costs less and saves both time and labor.
Traders Transform, Each Showing Their Own Moves to Seek Development
Before 2012, Zhu Liping, like many grain traders in Bayan County, purchased corn and soybeans. But as competition intensified and people paid more attention to food safety, relying on Bayan County's high-quality non-GMO soybeans, Zhu Liping seized the opportunity and established Heilongjiang Waxingqiao Small Press Oil Co., Ltd.
Zhu Liping introduced that his oil mill mainly used the screw physical pressing process, with annual soybean use of about 10,000 tons. The products were supplied exclusively to supermarkets, and this purely physically pressed soybean oil, marketed on its "health" appeal, was quickly sought after as soon as it appeared. Zhu Liping said that because raw material procurement was strict, the meal and cake quality was relatively good, and most was used for export. The oil mill also set up offices in Harbin, Dalian and other places. Although the product's selling price was far higher than other brands, it was still in short supply. Zhu Liping introduced that the Bayan area currently had five or six similar oil mills, with annual soybean use of about 60,000 tons, and his oil mill was being expanded. Once a production line with a daily processing capacity of 100 tons came online next year, his annual soybean use would exceed 30,000 tons.
However, as far as he knew, local traders mostly did not dare to store grain unless they had their own market, because most had not made money last year. He predicted that traders would not dare to store corn, while they might store some soybeans.
Huibao Grain and Oil is a relatively large grain trader in Haibei Town, Hailun City, mainly purchasing soybeans. According to the enterprise's head, Li Zhongfang, the company's annual soybean trade volume was now about 30,000 tons, not including state reserves. After selection, the company's soybeans could meet different customer needs: sprouting beans were mostly sent to Beijing, Chongqing and other places, protein beans were mostly sent to processing plants in Shandong, and there were also oil beans sent to oil mills, with profit of about 100 yuan per ton. Li Zhongfang said that in Haibei Town alone there were twenty or thirty traders of her scale.
Li Zhongfang was no stranger to futures. She began to learn about futures in 2002, and after 2008 she also traded futures for a fairly long period. According to her, there were then about twenty or thirty local traders like her who traded futures. Li Zhongfang traded varieties such as soybeans, soybean oil and soybean meal, and also participated in delivery. In recent years, under the influence of the temporary storage policy, many people including Li Zhongfang had left the futures market.
The spot business had also not been easy for traders like her in the past two years: first, competition was relatively fierce; second, they bore relatively large risks. Especially for protein beans sent to Shandong, genetically modified varieties might be mixed in; although the probability was only one in a thousand, the goods might be rejected by the factory. She even told the reporter that when conditions were ripe, she would go abroad to contract land specifically to grow non-GMO soybeans.
Because this year's corn and soybean harvests were bumper, she predicted the market would not lack grain, but she had no intention of storing more soybeans, buying and shipping as she went. Her warehouse still held hundreds of tons of 2011 state-reserve soybeans, which because of their relatively good quality were not hard to sell.
Behind the Bumper Harvest, Market Risks Warrant Vigilance
During the grain planting period, blind planting due to lack of information and guidance still led to bumper harvests without bumper incomes in many places.
In Xiaohongqi Yingzi Village, Xigang Town, Heihe, Li Yan, who was harvesting corn, told the reporter that many people in their village had lost money growing soybeans last year, and this year most had switched to miscellaneous grains, but prices were relatively low and they still lost money.
This year the corn yield in their area could reach 24,000 to 25,000 jin per shang, with profit above 4,000 yuan. Even so, she felt farmers still did not dare to contract land, because for them farming still depended mostly on heaven, and she had no confidence at all about next year's harvest and prices.
Sun Tiecheng's bumper harvest this year was also bought with hard work. During the corn growing period, he slept less than two hours a day, but fortunately he achieved a bumper harvest in his first year of planting. According to him, a corn grower he knew lost a lot last year because of a poor harvest.
In addition to using advanced farming machinery, Sun Tiecheng had even taken a stake in a rural commercial bank. He said the biggest benefit was priority access to loans and corresponding policy support.
But he admitted that the corn variety he planted consumed especially large amounts of fertilizer: this year each shang of land was fertilized with 1,200 jin, and next year that figure might reach 1,500 jin.
As for the form in which the direct subsidy policy would be introduced after the abolition of temporary soybean storage, many people had no confidence.
From the visits, farmers, large-scale grain growers and traders all had relatively high expectations for national policy. Policy had a relatively large impact on those who farmed, and the extent of its impact on spot prices of soybeans and corn still needed further observation.
Regarding this year's soybean direct subsidy policy, Wang Zhankui also gave his view. Although the state had announced the direct subsidy policy and target price, he believed that farmers' selling prices, grain quality and output made it difficult to confirm a base figure, and operation was difficult. In particular, soybeans had already begun to be cut while the detailed operational rules for the direct subsidy policy had not yet been issued, and he still had doubts about how it would be implemented later.
This man, who had dealt with grain all his life, also had a certain understanding of futures. He hoped a delivery warehouse could be set up in Mo Banner, "which would provide local farmers with more accurate grain price information and facilitate adjustment of the planting structure and the development of contract farming."