Grain prices plummet, farmers' incomes drop sharply, and finances and stockpiles are under pressure too

"This year's grain prices have fallen too hard." Liu Xueyou said helplessly. Liu Xueyou, 51 this year, is a major grain grower in Xi County, Xinyang City, Henan Province, with more than 16,000 mu of transferred land, accounting for one percent of the county's total arable land, and is known as the "Grain King of Henan."

The fall in grain prices caught him off guard, and he has not sold much grain either. He described that corn fell from 1.3 yuan per jin last year to 0.7 yuan now, and wheat also fell by 0.2-0.3 yuan per jin. "This year it is very normal for major grain growers to lose 100,000 to 200,000 yuan, but for them, growing grain can hold out for two years at most. If they lose money for two consecutive years, by the third year they cannot hold on anymore. When there is no prospect, it is easy to give up."

More than 200 kilometers away, Qi Qiuyang, also a major grain grower, likewise encountered this year's "difficulty in selling grain." Qi Qiuyang is the legal representative of Shengkang Family Farm in Sheqi County, Nanyang City, Henan Province, and was rated a "National Major Grain Grower" by the Ministry of Agriculture in 2014. When he saw the reporter, he also looked dejected, and even complained somewhat, saying, "Expectation is an empty phrase, useless."

⟦NL> In late October this year, a reporter from China Business News conducted research in multiple counties in southern Henan and found that farmers this year had "difficulty in selling grain," not only because wheat quality did not meet standards, but also because corn prices fell sharply, causing farmers to have a bumper harvest but not increased income. What is reflected behind the price decline is the urgent need to adjust the domestic minimum purchase price policy and the temporary storage policy, because the implementation costs of these policies are too high, leading to excessive pressure on finances and stockpiles, and also adding fuel to the widening price gap between domestic and international grain.

The central government has already attached importance to the difficulty in selling grain. On November 11, Premier Li Keqiang chaired an executive meeting of the State Council and pointed out that this year there was another bumper harvest, but there were also problems such as a large increase in stockpiles and falling prices. At present, when autumn harvesting and winter planting are underway, multiple measures must be taken simultaneously to effectively protect farmers' interests and their enthusiasm for growing grain. This includes increasing investment in the construction of storage facilities, promptly introducing policies to encourage processing enterprises to enter the market to buy grain, steadily digesting existing stockpiles, reforming the grain price formation and storage mechanisms, promoting the conversion of sloping land in the south back to forest, advancing fallowing and corn-soybean rotation, expanding the pilot scope of "grain-to-feed," and promoting the adjustment of the planting structure.

Rainy weather causes wheat quality to fail standards

Thanks to central policies, the most obvious manifestation is that twelve consecutive No. 1 central documents have focused on "agriculture, rural areas and farmers," and central and local finances have strongly supported agriculture. By 2015, China achieved twelve consecutive increases in total grain output. In addition, the contributions of the minimum purchase price policy that began in 2004 and the temporary storage policy that began in 2008 were also quite obvious.

The minimum purchase price policy targets key regions and key grain varieties. China began implementing it in 2004; in 2005, the state for the first time launched the emergency plan for the minimum purchase price of rice in some major rice-producing areas in the south; in 2006, it also launched the emergency plan for the minimum purchase price of wheat in some major wheat-producing areas. The temporary storage policy began in 2008 and covered crop varieties including corn. At that time, it was intended to stabilize the market and solve the problem of farmers in Northeast China having difficulty selling corn and falling prices, aiming to protect farmers' interests and their enthusiasm for growing grain.

For the government, the original intention of this policy was to avoid dampening farmers' enthusiasm for growing grain and repeating the mistake of "cheap grain hurting farmers." Sinograin is the entity entrusted by the state to implement the minimum purchase price policy and the temporary storage policy.

Liu Xueyou said that in previous years, after the grain harvest, the main destination was transport to Sinograin reserve depots, and grain brokers all sent trucks to haul the grain. Protected by the market-support purchase price, the income from selling grain every year was very stable, but this year the situation took a sharp turn for the worse. "This year, major growers will lose money as long as the land transfer fee per mu exceeds 500 yuan. Farmers who keep it within 500 yuan basically break even."

Xi County, with the Huai River running across its entire territory, is mainly low flat plains and gentle hills, suitable for growing two seasons of crops a year, with a planting structure of "wheat + corn" and "wheat + rice."

Farmers' income from farming depends on two factors: per-mu yield and grain price. Liu Xueyou said that this year's grain output was still acceptable, with two seasons of crops per mu reaching 1,700-1,800 jin, but the returns were meager. The input for wheat and corn is about more than 400 yuan per mu. If the land transfer fee is 500 yuan, the cost of farming is close to 1,000 yuan, but this year grain prices fell across the board. Calculated according to income of 700 jin of wheat per mu at 0.9 yuan and 1,000 jin of corn at 0.7 yuan, the net return per mu slightly exceeds 300 yuan. Of course, grain output and quality are greatly affected by weather factors, and grain prices will fluctuate accordingly.

Liu Xueyou said that this year it is very normal for major grain growers to lose 100,000 to 200,000 yuan from farming. The main reason is that the grain price market is too low, and the grain price decline is too severe. Compared with last year's market, wheat is about 0.3 yuan lower per jin, and corn is 0.5 yuan lower. Moreover, the reality is that the previous path of obtaining stable returns by delivering reserve grain is no longer viable this year. The reason is that during the wheat maturity and harvest period, Xi County encountered rainy weather, wheat quality was affected, and the proportion of imperfect grains was high.

What are imperfect grains? According to the latest national wheat standard (GB1351-2008), damaged wheat grains that still have use value include insect-damaged grains, diseased-spot grains, broken grains, germinated grains and moldy grains. The 2015 emergency plan for the minimum purchase price of wheat and rice uses nationally standardized third-grade wheat produced in 2015 as the standard product. The imperfect grain content of third-grade wheat is within 8%, and that of the lowest-standard fifth-grade wheat is within 10%.

Yang Xinqun, deputy director of the Xi County Grain Bureau, told a China Business News reporter that this year's wheat varieties declined markedly, differing greatly from the standards required by the storage policy. After extensive and in-depth repeated investigations among farmers and purchase points, the Grain Bureau found that the imperfect grain content of wheat throughout the county was basically above 15%, some even exceeding 30%. Very little met the standard, basically existing only among individual farmers.

Because grain brokers purchase grain from small farmers, this causes wheat that meets standards and wheat that does not meet standards to be gathered together and "mixed and blended," and the imperfect grain content of sampled wheat cannot meet the standard. This year the county opened 100,000 tons of warehouse capacity, but in the end not a single grain was taken in. Yang Xinqun said that Liu Xueyou is both a major grower and also purchases grain from other farmers. Because of lax checks, the imperfect grain content of his wheat also exceeded the standard. "We even went specially to the site and conducted on-site inspection in his warehouse," and "no one dares to buy it if it does not meet the standard."

According to media reports, this year in Hubei, Anhui and parts of Henan, rainy weather was encountered during the summer wheat maturity and harvest period, causing the proportion of imperfect grains in wheat in the region to be too high to meet the national minimum standard that the imperfect grain ratio for market-support wheat purchases not exceed 10%, making it impossible to purchase and store. This created the dilemma of farmers having "difficulty in selling grain" and grain stations having "difficulty in buying grain." In response, relevant central departments and the three provinces of Hubei, Henan and Anhui all issued corresponding policies to solve farmers' "difficulty in selling grain."

Adjustment of temporary storage policy causes corn prices to plummet

Generally speaking, the highest prices for wheat and corn both appear before new grain comes onto the market.

Statistics show that wheat peaked at 2,600 yuan/ton in March-April, and corn peaked at 2,400 yuan/ton in August. But after the wheat market-support purchase ended on September 30, the wheat price was about 2,400 yuan/ton, and in mid-to-late October the wheat price fell to about 2,200 yuan/ton, a drop of nearly 10%, and down 15.4% from this year's high;

Corn prices began falling in August, from 2,400 yuan/ton to 2,200 yuan/ton. After the temporary storage price for corn was announced on September 18, North China corn plunged from 2,200 yuan/ton to 1,800-1,900 yuan/ton, a price drop of nearly 20%. By late October, when new grain came onto the market in North China, the price fell to 1,600-1,700 yuan/ton, down about 30% from the high.

However, afterward both wheat and corn prices rebounded. As of December 16, the price in domestic wheat-producing areas was between 2,300-2,400 yuan/ton, the price in northern corn-producing areas was 1,850-1,950 yuan/ton, and in Northeast China it was 1,950-2,000 yuan/ton.

It should also be explained that the "suddenness" of the temporary storage price reduction policy has been widely criticized in the industry. Because corn, whose maturity period is August-October, encountered a temporary storage price cut announced in mid-September, agricultural planting entities could only bear the price decline. Some industry insiders analyzed that this was due to the lag in policymakers' access to information, and correspondingly there was a lack of supporting policies to compensate farmers for the losses caused by this.

Facing this year's autumn grain harvest, especially the sharp drop in corn prices, during this newspaper's interview process, most farmers comforted themselves with reasons they could understand. Some blamed it on the impact of international grain prices, while others believed it was coordinated with the shift in national agricultural subsidy policy, actually intended to encourage land transfer and cultivate major grain growers (but this time major grain growers suffered serious losses).