The weekly corn report from the National Grain and Oils Information Center reports that the difference in corn prices between northeast and south has temporarily narrowed. The corn price in Dalian and elsewhere in the northeast has been rising as farmers have been hesitant to sell corn. Corn purchases from farmers in the northeast are well behind last year's pace at this time.
Meanwhile, in Guangdong the price has been more or less stable. Starting in November, large quantities of corn were transported south. NGOIC says commercial corn inventories in Guangzhou are now about 300,000 metric tons, much higher than normal inventories of 150,000-200,000 metric tons.
The cost of shipping from Dalian to Guangzhou has fallen from 170 yuan per ton in November to 90 yuan now. Nevertheless, the profit for traders has shrunk from 50 yuan per ton to nothing due to the higher Dalian price. NGOIC says some traders are keeping an open interest in corn for two reasons. One is to be ready in case a steady customer needs some corn. Second, traders are hoping to get a government subsidy of 70 yuan per ton for transporting corn to the south. The subsidy is withdrawn when the farmers' price goes above 0.8 yuan per jin (1600 yuan per metric ton) and the price is above that threshold now, so it's questionable whether they will get the subsidy.
NGOIC thinks not much corn will be sent south in coming weeks. As inventories in Guangzhou are drawn down the price will rise and the north-south price differential will narrow. Thus, they think the narrowing of the differential is a temporary phenomenon.
Interestingly, another piece in the NGOIC newsletter describes how the cobweb model explains volatility in Chinese corn prices, concluding that economists' assumptions of rational actors and perfect competition are unrealistic. Yet the description of how various economic actors react to interregional price differentials buttresses the powerful equilibrating process of traders reacting to market signals.
Meanwhile, in Guangdong the price has been more or less stable. Starting in November, large quantities of corn were transported south. NGOIC says commercial corn inventories in Guangzhou are now about 300,000 metric tons, much higher than normal inventories of 150,000-200,000 metric tons.
The cost of shipping from Dalian to Guangzhou has fallen from 170 yuan per ton in November to 90 yuan now. Nevertheless, the profit for traders has shrunk from 50 yuan per ton to nothing due to the higher Dalian price. NGOIC says some traders are keeping an open interest in corn for two reasons. One is to be ready in case a steady customer needs some corn. Second, traders are hoping to get a government subsidy of 70 yuan per ton for transporting corn to the south. The subsidy is withdrawn when the farmers' price goes above 0.8 yuan per jin (1600 yuan per metric ton) and the price is above that threshold now, so it's questionable whether they will get the subsidy.
NGOIC thinks not much corn will be sent south in coming weeks. As inventories in Guangzhou are drawn down the price will rise and the north-south price differential will narrow. Thus, they think the narrowing of the differential is a temporary phenomenon.
Interestingly, another piece in the NGOIC newsletter describes how the cobweb model explains volatility in Chinese corn prices, concluding that economists' assumptions of rational actors and perfect competition are unrealistic. Yet the description of how various economic actors react to interregional price differentials buttresses the powerful equilibrating process of traders reacting to market signals.
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