With a bumper corn harvest in sight, what will it take to activate the market?
"Buy, buy, buy! I'll say it three times because it's important." At the Jilin Province Grain Production and Marketing Cooperation Fair held in August, Sui Zhongcheng, Vice Governor of Jilin Province, used a popular internet phrase to express the urgency of selling grain. He appealed to nearly a thousand heads of grain administrative departments and representatives of grain-related enterprises from 31 provinces, autonomous regions and municipalities across the country: "Buy more grain from Jilin."
Right now, a bumper corn harvest is in sight on the black soil of Jilin. This year, the temporary corn storage policy has been abolished and market pricing has been implemented. As a major corn-growing province, what tests will Jilin Province face, and what measures will it take to respond?
How much corn is there?
Annual output averages around 58 billion jin (29 million tonnes), while actual processing volume is less than half of output
"In previous years, grain prices rose year after year, so everyone planted with confidence and boldly, turning corn into a 'diehard' crop, and growing corn became our strong suit." Sun Shoufeng, a major grain grower in Wangfu Station Town, Songyuan City, said that this year he planted more than 170 hectares of corn, a decrease of about sixty hectares from last year.
Corn in Jilin Province is mainly yellow corn, with an annual sown area of about 59 million mu, an output of around 58 billion jin, accounting for about 15% of the national total, and a commercial volume of about 55 billion jin, with a commercialization rate of 95%, ranking first in the country.
This year, Jilin Province reduced the planted area of grain corn by 3.3258 million mu. Calculated at a yield of 1,000 jin per mu, Jilin Province can reduce corn by more than 3 billion jin.
In previous years, corn prices were inverted between producing and selling areas and between the domestic and international markets, which led to imported corn and substitutes entering the market while domestically produced corn went into warehouses, said Yang Guang, Deputy Director of the Jilin Provincial Grain Bureau. Temporary storage purchases were launched in November last year, and as of April 30 this year, Jilin Province had purchased 53.1 billion kg of corn.
At present, corn inventories are still running at a high level, while processing and conversion capacity is limited, and market demand for corn finished products is not strong.
Corn deep processing, as one of the three pillar industries of Jilin Province, has an annual processing capacity of 30 billion jin, with actual annual processing volume of around 22 billion jin, ranking second in the country. Converted this way, more than half of Jilin Province's annual corn output remains to be absorbed.
What price will corn actually be after it hits the market this year? "The price definitely can't be too good." With the harvest season approaching, Sun Shoufeng cares about the corn price but does not hold out too much hope.
"No one can answer this question accurately." Chen Xiwen, member of the Standing Committee of the National Committee of the Chinese People's Political Consultative Conference and former Deputy Head and Director of the Office of the Central Leading Group for Rural Work, said that, based on market pricing, the landed price of imported corn provides a reference.
"The landed price of US corn in Guangzhou is around 1,400 yuan per tonne, and the recent futures price is around 1,450 yuan per tonne." Yang Guang said that based on this estimate, the corn price this autumn may be less than 7 mao per jin.
Behind the lower corn price, the broader environment of supply exceeding demand has not changed. Yang Guang analyzed that at present, the country's annual corn supply is more than 570 billion jin, while consumption is only around 410 billion jin, and the gap between supply and demand remains considerable.
Judging from the situation of vacating and unloading policy grain warehouses in Jilin Province, 2 million tonnes were put up for auction each week recently, and the transaction volume has already fallen below 100,000 tonnes. At present, through channels such as targeted sales to deep-processing and feed enterprises and public bidding sales, Jilin Province has sold 17.544 billion jin of policy grain.
How big are the tests?
The corn purchase and sales market situation is complex, farmers mostly hold a wait-and-see attitude, and grain trading and processing enterprises lack purchase funds
Corn prices are decided by the market, triggering a series of chain reactions, and the purchase and sales market faces no small test.
As a national key leading enterprise in agricultural industrialization, Jilin Province Xintianlong Industrial Co., Ltd. has a raw material corn storage capacity of 500,000 tonnes and an annual corn processing and conversion capacity of more than 900,000 tonnes.
"At present, the enterprise is operating at full capacity, mainly using grain from auctioned warehouses. Only 75,000 tonnes are stored in the warehouse, enough for one month's use. With so much old grain in the grain depots, enterprises dare not easily build up inventories." Wang Xianqi, Director of the Materials Purchasing and Storage Department of the company, said.
Yang Guang introduced that because corn market prices are hard to predict and this year's corn harvest is in sight, terminal feed and deep-processing enterprises are keeping only short-term processing inventories, and grain procurement, storage and trading enterprises can only adopt a strategy of selling while purchasing.
"If the autumn grain price is too low when it hits the market, we'll have to store the grain after harvesting and wait until at least early spring." Sun Shoufeng said that the cooperative's funds are not ample either, and to plant in early spring, it will have to sell grain to raise money.
"Market pricing definitely cannot compare with the prices under the previous temporary storage policy. After the autumn grain purchase begins, if the price is not ideal, farmers will probably be reluctant to sell." Yang Guang said that if farmers sell grain in a concentrated way in early spring, problems such as difficulty selling grain and grain spoilage may break out in concentrated fashion, and the contradiction between a large concentrated volume of grain coming onto the market and enterprises' year-round dispersed purchasing will also become prominent.
Chen Xiwen believes that many years of the temporary corn storage policy created a policy market. The temporary corn storage price being higher than the market price made it difficult for business entities other than departments and enterprises undertaking policy grain purchases to carry out grain trade.
To straighten out the corn price formation mechanism and truly move it toward market pricing, dynamic market entities are needed, that is, grain trading and processing enterprises must fully participate.
"This not only requires enterprises to have relevant qualifications such as warehousing, but also to have the financial strength to purchase grain, which cannot be separated from financial support." Chen Xiwen said that otherwise, when the autumn grain arrives, without diverse market entities participating in purchases, farmers' grain will not be able to be converted into cash.
Based on Jilin Province's annual commercial corn volume of around 55 billion jin, the demand for purchase funds will exceed 40 billion yuan. "For a bulk commodity like grain, it is impossible to rely solely on enterprises to raise funds; without loans, operations cannot proceed." Yang Guang said that because of market risks, banks dare not easily lend, and enterprises face obstacles in raising purchase funds.
How difficult is the response?
Connecting production and sales to activate the market, the financial system serving purchase and sales needs to be improved
"Although the transport cost per tonne of corn is around 200 yuan, Jilin's corn is of good quality and suitable for our feed processing." Zhou Lijie, General Manager of the Nanning City Grain Reserve Management Company of the Guangxi Zhuang Autonomous Region, said that last year Guangxi's feed output reached 10.58 million tonnes, with corn purchases of about 5 million tonnes, of which Jilin corn accounted for more than 40% of total purchases.
Jilin Province is located in one of the world's three major "golden corn belts," and its natural conditions are conducive to developing high-quality corn planting, with relatively high corn quality. Data show that Jilin corn has an average test weight of more than 700 grams, with grade two and above accounting for 80%.
At the grain production and marketing cooperation fair held a few days ago, Zhou Lijie's company signed an agreement with Jilin Province Grain Reserve Purchasing and Storage Co., Ltd. for the purchase of 100,000 tonnes of corn, as well as an agreement for 100,000 tonnes of corn storage on behalf.
"With the help of the grain fair and visits for matchmaking, we reconnect with old friends and meet new ones, so that grain enterprises everywhere will think of Jilin when they need grain. This is a small step in activating the purchase and sales market." Yang Guang introduced that this grain fair signed a total of 190 projects, with a grain trade volume of 9.48 million tonnes and a transaction value of nearly 20 billion yuan.
Jilin Province fully mobilized selling-area markets, enabling major grain-producing cities and counties within the province to connect with other provinces, municipalities and grain-related enterprises, and mobilizing enterprises inside and outside the province to use favorable factors such as Jilin Province's 100 billion jin of warehouse capacity, more than 300 billion jin of purchasing and storage capacity, superior grain storage climate and smooth outbound transport capacity to carry out production and sales cooperation through methods such as purchasing and selling on behalf, joint purchasing and joint selling, cooperative operation and off-site storage.
"To solve the difficult problem of grain purchase and sales, grain must have warehouses to be received into, people to receive it, and money to receive it." Yang Guang said.
According to reports, this year Jilin Province mobilized diverse entities to build warehouses, with social financing of 890 million yuan and the construction of 4 million tonnes of warehouse capacity. At the same time, the province expanded grain banks to 150 and built scientific grain storage warehouses, guiding farmers to make their own grain storage containers, basically meeting the needs of warehousing and farm household courtyard grain storage.
In the first half of this year, Jilin Province issued a policy giving enterprises that purchase and process corn themselves a subsidy of 150 yuan per tonne, allowing large deep-processing enterprises to maintain a relatively high operating rate.
"Next, the province will promote mergers and reorganization in the corn deep-processing industry, extend the industrial chain, develop intensive and deep processing, and increase added value. At the same time, it will encourage feed enterprises and the breeding industry to expand breeding conversion volume and promote nearby processing and conversion of corn." Yang Guang said.
At present, Jilin Province is improving the basic information system for grain enterprises and incorporating the main information of grain-related enterprises across the province into it. This will provide reliable information for financial departments and facilitate banks in issuing loans. However, "the government is still limited to promoting and organizing bank-enterprise cooperation, and the financial system that truly serves grain purchase and sales still needs to be improved." Yang Guang stated.