Grain circulation enters a painful transition period, and industry transformation faces a test
"Prices have fallen back to the level of ten years ago, and the national grain depots, the biggest customer, have stopped buying." It is once again the annual grain-selling season. What dynamics are there in this year's grain purchase and sales market? Reporters from Outlook Newsweek conducted an in-depth investigation along the front lines of China's main grain-producing areas and found that in the first purchase and sales season after the reform of China's corn purchase and storage policy, corn purchase and sales are already facing the dual problems of falling prices and weak demand.
Northeast China is the region with the largest grain output, commercial volume and outflow volume in China, accounting for about one quarter of the national total grain output. Corn is the grain variety with the largest output in the region. Corn planting area in Heilongjiang accounts for about half, and more than half of the sown area of grain crops in Jilin is corn. Even though part of the corn planting area was reduced this year, corn is still the grain variety with the largest planting area and the largest output in Northeast China.
Compared with previous years, great changes have appeared in this autumn's grain market. After cotton and soybeans cancelled "price support," the corn temporary storage policy implemented in Northeast China for many years has also ushered in a major adjustment. In March this year, corn "price support" was cancelled, and corn purchase and sales in Northeast China will change from the "policy market" of previous years to "market-based purchase."
Experts from the grain authorities believe that with the cancellation of temporary corn storage purchases, limited market absorption capacity, and insufficient farmers' grain storage capacity, China's grain circulation has entered a "painful transition period." At present, it is necessary to promote processing and conversion and facilitate market circulation; in the long run, it is necessary to accelerate agricultural supply-side reform, improve effective supply, reduce production costs and enhance agriculture's international competitiveness.
Corn prices fall sharply
At present, new corn has already appeared sporadically on the market in Northeast China, with prices sharply lower than the same period last year. A survey from the Heilongjiang Provincial Grain Industry Association shows that this week spot corn purchase and sales in Heilongjiang are relatively light, and the loading price of dried third-grade new corn is only 1520-1540 yuan/ton.
Monitoring data obtained by Outlook Newsweek reporters show that deep-processing enterprises in Northeast China have successively begun purchasing new corn, among which the purchase price of Jilin Fuel Ethanol Enterprise is 1450 yuan/ton, the purchase price of the Inner Mongolia Zhalantun enterprise is 1400 yuan/ton, and the purchase price of the Liaoning Kaiyuan enterprise is 1570 yuan/ton, all sharply lower than the same period last year. Corn prices are increasingly sliding toward the prices of ten years ago.
Since China's temporary corn storage policy was introduced in 2007, Heilongjiang corn prices rose all the way from 1380 yuan/ton to 2200 yuan/ton in 2014. In 2015, the temporary corn storage price fell for the first time. But compared with import prices, the temporary storage price of 2000 yuan/ton still hovered at a high level.
Under the influence of "price support" in the era of temporary corn storage, corn prices in Northeast China have consistently run at a high level. Most corn did not enter the market, but entered state reserve depots and became "policy grain." This is an important reason for "state grain entering warehouses, foreign grain entering the market, and grain inventories remaining high." In the view of some local officials, no longer providing "price support" now means that corn will return to the market.
Not only are corn prices in Northeast China falling, corn prices in North China are also continuing to fall, and corn in southern sales areas likewise shows a downward trend. Industry insiders analyze that at present summer corn in North China is being supplied to the market on a large scale, and corn from Northeast China has also begun to appear sporadically. As corn from the two major producing areas comes onto the market one after another, market supply will gradually increase, and domestic corn prices will continue to fall.
Shi Guimin, deputy general manager of Beidahuang Grain Group, Gao Xiuchun, deputy general manager of Dalian Guize Trading Company, and others estimate that after corn from Northeast China comes onto the market, the price of dry grain will be 1350-1450 yuan/ton. This means that new corn prices may return to the level of ten years ago. Against the background of no other favorable factors in the market, it is expected that corn prices may directly fall below farmers' psychological price level.
At present, some market signals are gradually being released. Recently, at the 2016 China Autumn Grain and Oil Market Analysis and Trade Negotiation Conference held in Harbin, attending experts believed that in the first year after the cancellation of the temporary storage purchase policy, the corn market will inevitably face a situation of repricing.
Cao Zhibiao, director of the Market Monitoring Division of the China National Grain and Oils Information Center, told this magazine's reporter that the reform of the state corn purchase and storage system and market pricing have led to strong expectations of falling corn prices, and expectations of increased production at home and abroad have intensified the contradiction between supply and demand imbalance. These factors determine that the domestic corn price trend will be mainly downward.
The grain market is quiet
Outlook Newsweek reporters found in investigations in multiple places that most market-based purchasing entities hold a wait-and-see "wait and see" attitude. More than ten heads of grain purchasing enterprises interviewed said that because they have lost the support of temporary storage, the corn they purchase may have no sales outlet, which would cause grain to pile up and tie up large amounts of funds, so most do not dare to purchase rashly.
Xie Mingdeng, general manager of Heilongjiang Province Tangyuan County Xinhang Grain Economy and Trade Co., Ltd., said: "In previous years, after the purchased corn was dried, it could be sold to Sinograin, and there was no need to worry about sales. This year the temporary storage policy has been cancelled, so we have to focus purchases on rice, and as for corn, we will wait and see."
"In previous years at this time, some grain brokers had already begun to get moving, at least contacting some large grain-growing households and grain depots in advance, but this year there has been no movement yet." Wang Jun, general manager of Yi'an Grain Depot Co., Ltd. in Yi'an County, said that the corn harvest is about to begin, but this year's grain market is "quiet."
"This year, farmers who are used to selling corn to state reserve depots must find new customers. If they cannot find new customers, then in this year's grain circulation it will not only be a problem of low grain prices; some corn may face difficulty in being sold." His worry about this year's corn purchase and storage situation is relatively common in Northeast China.
Li Guoxiang, a researcher at the Rural Development Institute of the Chinese Academy of Social Sciences, analyzed for this magazine's reporter that at present corn mainly has two outlets. On the one hand is the feed industry, where demand is relatively stable; on the other hand is deep processing. When corn prices fall, to a certain extent this will stimulate a reduction in imports of corn and its substitutes and drive an increase in the operating rate of deep-processing enterprises. Although this can free up some purchasing space, it cannot offset the impact of losing the big customer of state reserve depots, and the corn purchase and sales situation remains severe.
Some grassroots officials in Northeast China believe that if the market price of corn is too low when it comes onto the market, farmers' reluctance to sell will also intensify, and coupled with insufficient incentive for market-based purchasing entities to enter the market, corn purchase and sales will become sluggish, and even a phased "deadlock" may occur.
In addition to being affected by adjustments in grain purchase and sales policy, declining grain quality in some areas has also intensified the pain in the grain purchase and sales market. This summer, affected by severe meteorological disasters such as typhoons, floods and drought, obvious disasters occurred in Northeast China and some southern provinces, grain quality in some areas declined somewhat, and this also worsened the "pain" in grain circulation.
Experts such as Li Guoxiang believe that under phased and structural supply-demand contradictions, with the state not providing price support and limited market absorption, grain market circulation has entered a certain "adjustment period." For farmers, if the subsidies given by the state cannot offset the impact of falling grain prices, then farmers selling grain will face a "painful transition period" for a certain period. "Experts believe that the adjustment of corn purchase and sales policy in Northeast China will directly affect the national grain price trend and purchase and sales, and even affect grain storage security and agricultural production next year."
At present, many farmers store grain in the "grain lying on the ground" style, and storage methods are backward. Some local officials say that if alternate cold and warm weather occurs, corn with relatively high moisture is extremely prone to risks such as mold and rot during storage, resulting in "spoiled grain." Corn that cannot be sold may show a large-scale phenomenon of "grain stuck." Once cooperatives and large grain-growing households suffer losses due to corn backlog and spoiled grain, this will affect grain production next year.
Accelerate supply-side reform
In order to "actively and steadily advance the reform of the corn purchase and storage system and effectively do a good job in this year's corn purchase work in Northeast China," the National Development and Reform Commission, the National Grain Administration, the Ministry of Finance, the Ministry of Agriculture and other departments jointly issued at the end of September the "Notice on Effectively Doing a Good Job in This Year's Corn Purchase Work in Northeast China," clearly pointing out that "this year is the first year of reform, and doing a good job in corn purchase under the new mechanism is crucial." It also put forward relevant requirements in eight aspects, including guaranteeing purchase credit funds, guiding market-based purchases, arranging warehouse capacity in advance, and strengthening production and sales linkage.
In the view of experts, the adjustment of corn purchase policy in Northeast China concerns the regulatory system of the agricultural product market and concerns agricultural supply-side structural reform, and will have a profound impact on China's food security. In response to this year's new grain market policy and the new dynamics and new problems it has triggered, some local officials and experts suggest:
First, encourage and support the establishment of a market-based purchase system with state-owned grain purchase and sales enterprises as the main body. State-owned grain enterprises should quickly step up the pace of grain auction rotation, use the favorable opportunity before new grain comes onto the market, vacate warehouses and shift stocks to expand warehouse capacity. At the same time, do a good job in various preliminary preparations such as coordinating loans with the Agricultural Development Bank to ensure that grain purchasing begins on schedule. Private grain enterprises should also innovate purchase methods, keep a close eye on the outlet of the corn deep-processing industry, rely on large grain enterprises and large processing enterprises, and adopt methods such as alliances, cooperation and entrusted storage to open up markets and sales channels.
Second, increase publicity for the policy of market-based corn purchasing and create a favorable public opinion atmosphere. Shang Qiangmin, vice president of the China Grain Economy Association, suggests increasing publicity for market-based purchasing, introducing its significance, and clarifying rumors that may still exist in some places about possibly launching emergency purchase and storage, so as to avoid farmers waiting for the launch of "emergency" purchase and storage because market prices are low, which would increase purchase and storage pressure.
Third, strengthen the construction of the "farmer scientific grain storage project" and guide farmers to store grain scientifically. Grassroots officials believe that relevant departments launched the farmer scientific grain storage project in 2007 and achieved certain results. Training in farmers' scientific grain storage knowledge should continue to be strengthened, and the research, development and promotion of new green and environmentally friendly grain storage technologies and new equipment should be increased to improve farmers' level of scientific grain storage. Scientific grain storage and reasonable planning of grain-selling time are important measures for smoothly selling grain and preventing spoiled grain.
Experts believe that from a long-term perspective, first, it is necessary to expand processing and conversion capacity. Increase support for the development of animal husbandry and breeding industries and accelerate grain consumption. Focus on increasing the effective supply of deep-processed grain products needed in fields such as chemicals, medicine and health care, and gradually fill shortcomings; second, strengthen the construction of a modern logistics system for "transporting grain from north to south." Accelerate the construction of a number of grain receiving and dispatching facilities, support the construction of a number of transfer warehouses, railway special lines and inland river and coastal wharves, and increase subsidies for southward grain transport, focusing on solving the problem of high logistics costs faced by "transporting grain from north to south"; third, guide agricultural supply-side structural reform, appropriately reduce the planting area of some structurally excessive grain crops, and increase effective supply. At the same time, reduce agricultural production costs through various means, enhance the international competitiveness of agricultural products, and adapt to the new situation of agricultural product and grain supply and demand.