Thursday, August 27, 2009

Subsidies for sale of stockpiled corn

This is a translation of an online article.

China's officials are planning to give subsidies of 150 yuan/metric ton to "deep processing" companies to induce them to buy corn from the huge 30 mmt stockpile held in State reserves. The first round will be about 5.8 mmt, with more possibly issued later. A similar subsidy for soybeans is reported under consideration.

On August 25, Heilongjiang Province’s grain bureau released a notice which referred to another notice jointly issued by the National Development and Reform Commission, State grain bureau, Finance Ministry, and Agricultural Development Bank "Notice on Transfer of part of temporary state reserve corn by local sales."

Industry insiders told reporters about the subsidy methods. A part of the over 30 mmt of State reserves will be transferred to provincial grain bureaus as local reserves. Then it can be prepared for local sale. Purchasers of the corn must be processing enterprises with capacity of 100,000 mt or more and the price can be no lower than 1550 yuan/mt, the same price as the State reserve auction price, but with a 150 yuan/mt subsidy.

As of yesterday, 6 auctions of state reserve corn had been held with a cumulative total of 5.8 mmt, and State purchases of corn for reserve were about 36 mmt, so the surplus is still 30 mmt, a grim surplus situation. If production reaches 150 mmt or so, it will be hard to sell the 30 mmt in stock now and the total supply will be 180 mmt or so. Domestic corn demand for feed, industrial use is only about 130 mmt, so there is a clear surplus.

Jiao said a subsidy of 150 yuan/mt is attractive to corn processing enterprises. He said, “The corn price in the Huang-Huai region is now about .8 yuan/jin (1600 yuan/mt), and .9 yuan in some places. Corn sale price is 1550 yuan, so with a 150 yuan subsidy the actual cost is only 1400 yuan.”

However, a Heilongjiang grain bureau official told the reporter that the subsidy may be less than 150 yuan after deducting storage costs and interest expense.

According to materials from Heilongjiang’s grain bureau, the province’s sales will be 1.97 MMT. The CBN reporter learned that this round of grain transfers in the northeast totals 5.8 mmt: Inner Mongolia 1.04 mmt; Liaoning 230,000 mt; Jilin 2.5 mmt; Heilongjiang 1.97 mmt. More sales may be held after this batch is sold.

At the same time, northeastern soybean processing enterprises are anticipating subsidies for reserve soybean sales. Yesterday, the sixth auction of state reserve soybeans was held with a planned sale of 496,800 metric tons, but actual sales were just 960 mt (1.93%). The minimum price for the auction was 3750 yuan. The purchasing price for Heilongjiang processing enterprises is currently about 3600 yuan, so there was little enthusiasm for the auction. Cumulative sales of government reserve soybeans are just 30,000 mt; there are still over 5 mmt to be sold.