China willing to let domestic corn prices fall close to international levels

BEIJING, Oct 18 (Reuters) – China’s state stockpiler Sinograin is offering to buy corn in north-east China at market prices, analysts said, underlining the government’s willingness to let prices for the crop fall close to international levels.

Beijing has scrapped a years-long corn stockpiling scheme under which it paid farmers above-market prices for their crop but left the state saddled with mountains of deteriorating corn. As farmers prepare to harvest the first corn crop in nine years without state support, prices have tumbled 20 percent in the last month, prompting speculation over whether Beijing could step in to support growers.

The China Grain Reserves Corporation, known as Sinograin, began buying corn last week in Inner Mongolia, offering farmers between 1,300 yuan and 1,420 yuan (US$195 and $213) a tonne, according to a Sinograin document posted on China’s twitter-like Weibo.

This is about a third below prices it paid last year. It is above current prices of around $140 a tonne on the Chicago futures market, but not far above the landed price in parts of China.

Inner Mongolia is one of the regions that make up China’s major corn growing area in the north-east.

Sinograin, which stockpiles grain for the state, and the National Development and Reform Commission, which dictates the China’s stockpiling policy, did not respond to requests seeking to verify the document.

Analysts said they had confirmed Sinograin’s purchasing plan with industry sources.

The move is part of Sinograin’s regular stock rotation and should not be seen as a return to temporary stockpiling, analysts said.

“The government is buying but the price is set by the market,” said Li Qiang, chief consultant at Shanghai JC Intelligence Co.

Last month, the State Grain Administration urged state-owned companies to actively buy corn and banks to lend to buyers to help purchasing amid growing concern that farmers would be unable to sell their crop to an oversupplied market.

Large sales from state stocks over the summer and an upcoming bumper crop have pressured domestic prices, with the most-active corn futures on the Dalian Commodity Exchange hitting one-year lows of 1,389 yuan per tonne late last month. They have since recovered to 1,437 yuan.

Last year the government paid about 2,000 yuan per tonne of grain in the north-east.

A price of 1,300 yuan would be the lowest since December 2011. It would barely cover farmers’ costs, said Ma Wenfeng, senior analyst at Beijing Orient Agribusiness Consultant Co.

“In fact, it’s almost the same as the U.S. price. U.S. corn arriving in China is around this price,” he said.

Beijing wants to reduce imports of cheap corn and other substitutes in a bid to eliminate its huge stocks.

The government has also approved permits for corn exports for the first time in years.

Sinograin is expected to launch similar purchasing activity in other parts of the north-east, said analysts.

About the author

Comments

explore

Stories from our other publications