Sinograin Caught in a Dilemma Over Grain Purchasing and Storage, Rushes to Free Up 30 Million Tonnes of Warehouse Capacity

Although the state treasury is overflowing with grain, China's corn, rice and wheat are expected to achieve another bumper harvest this year, while market demand for grain is unlikely to pick up. A new round of state grain purchasing and storage is imperative, and this will push China's grain stocks to a new record again.

China Grain Reserves Corporation (hereinafter referred to as "Sinograin") recently announced that before the autumn grain comes onto the market in November this year, it is expected to free up about 30 million tonnes of warehouse capacity through policy grain sales, warehouse transfers, variety swaps, allocations and newly built storage capacity, so as to ease the contradiction in purchasing warehouse capacity.

This year's wheat and early rice purchasing and storage in the first half of the year has already taken up a considerable amount of warehouse capacity. At present, the wheat minimum purchase price scheme purchasing has basically ended. As of August 25, Sinograin had purchased a cumulative 25.34 million tonnes of wheat under the minimum purchase price scheme, three times that of the same period last year. In addition, Sinograin had purchased 2.71 million tonnes of early rice under the minimum purchase price scheme.

The United States Department of Agriculture forecasts that China's rice and corn output will hit new highs, while the market's absorption capacity is limited, putting enormous pressure on Sinograin's storage capacity.

A research report released by the United States Department of Agriculture in August this year pointed out that, in terms of rice, for the 2014/2015 marketing year, China's rice processing volume is expected to reach 144 million tonnes, a new high in the past 5 years, with ending stocks of 46.049 million tonnes, which in the past five years is second only to the 46.826 million tonnes of the 2012/2013 marketing year. In terms of corn, for the 2014/2015 marketing year, China's corn output is expected to reach 222 million tonnes, also the highest output in the past 5 years, with ending stocks reaching 80.36 million tonnes, likewise a 5-year high.

Ma Wenfeng, an analyst at Oriental Agribusiness, told the reporter of China Business News that the grain consumption market has not been doing well this year. Sales of products from grain deep-processing enterprises are not ideal, and catering consumption has been greatly affected by the strict control of "three public" expenses. Even if there is growth, it cannot compare with previous years. This year's grain output is very likely to achieve a bumper harvest, and grain sales mainly rely on the state to provide a floor.

Another analyst who declined to be named told this newspaper's reporter that the greater warehouse capacity pressure this year is in corn and rice. Corn has the characteristics of large and concentrated market volume, while rice, apart from its huge output, includes both early rice and late rice, with new grain available throughout the year. Coupled with the impact of low-priced imported rice, the pressure on purchasing and storage is also very great.

In order to free up warehouses, since mid-May, Sinograin has stepped up policy grain auctions. As of mid-August, a cumulative 29.98 million tonnes of policy grain had been sold in three months. Sinograin said the target of selling 32 million tonnes before the end of October is expected to be completed ahead of schedule.

In terms of grain outbound delivery, Sinograin has arranged outbound delivery at maximum capacity, having organized the outbound delivery of 12.47 million tonnes. The three batches of inter-provincial warehouse transfer plans issued by the relevant state departments are also being executed efficiently. The first batch of 2 million tonnes of warehouse transfer has been completed ahead of schedule; 840,000 tonnes of the second batch of 2 million tonnes has been shipped; and the third batch of 6 million tonnes will be shipped successively, ensuring the full completion of the warehouse transfer task before the end of the year. Sinograin stated that the task of swapping 5.05 million tonnes of central reserve grain varieties and transferring and rotating temporary reserve grain has now completed more than 70% of the progress, and can be completed on schedule before the end of September, which will free up more warehouse capacity for key production areas.

In order to make way for new grain, Sinograin has spared no expense. Despite the inversion of production and sales prices and the widening price gap between new and old grain, from January to July this year, Sinograin vigorously pushed forward the rotation of central reserve grain, losing 560 million yuan. As of the end of July, 61% of old grain rotation out had been completed, and 43% of new grain rotation in had been completed, faster than in previous years.

An analyst told this newspaper's reporter that warehouse capacity is actually not a particularly big problem. The Chinese government has previously built a great many grain warehouses, and there is also a great deal of private warehouse capacity. As long as arrangements are reasonable and management keeps up, state and private warehouse capacity can guarantee the normal handling of grain. However, the necessity of adjusting the grain purchasing and storage policy is becoming more and more urgent. Grain purchasing and storage has pushed up China's grain prices, large quantities of foreign grain have entered the domestic market, and grain in the state granaries is difficult to ship out. This year the state reformed the purchasing and storage of soybeans and cotton, no longer purchasing and storing them, and instead adopting the form of target price subsidies. If the results are good after implementation, it may be applied to staple grain varieties such as rice, corn and wheat. More importantly, by raising the retirement income of rural residents, farmers' living security will no longer need to rely on land, so that land can be transferred, forming large-scale planting, and only then will it be possible to restore the competitiveness of Chinese agricultural products in the international market.