Friday, August 12, 2011

Early Rice Recovers?

The early-season rice crop has now been mostly harvested. There are varying reports on the status of the crop. The official party line is that the crop is good, and China has an eight-consecutive increase in "summer grain" production. Other reports note that losses to floods and droughts are serious.

One report cites data from the National Development and Reform Commission and China Grain Net that show a good harvest and production "back to normal." The China Grain Net balance sheet estimates that supply of early rice exceeds use by 1.2 million metric tons.

Another article says that the volume of rice is larger this year. However, due to rain the moisture content is high and there are lots of impurities. While costs are up and the supply-demand balance is tight, putting upward pressure on prices, quality problems will mean a generally low for much of the early rice.

The early rice crop is strategic because the government uses it to fill grain reserve bins (early rice has a high yield but most people don't like its taste and texture). A number of southern provinces are paying farmers a direct subsidy of 0.2 to 0.5 yuan per kg. if farmers sign a contract to deliver early rice to a state-owned enterprise. The purchase is executed at the market price or the minimum set by the government. This policy is intended to boost production of early rice and help government grain bins compete with private buyers to buy rice.

Some articles credit the subsidies with reviving early rice production. Last month, Wenzhou's local authorities announced that the minimum price for early rice would be no less than 2.2 yuan/kg. The minimum price was recently announced at 2.24 yuan, 9.8% higher than last year. Large farmers and cooperatives can get an extra bonus payment of .05 yuan/kg for contracting to sell to the government; individual farmers can only get .02 yuan/kg.

Perhaps more important than the subsidies, Wenzhou Grain Bureau officials held a "Five Delivers" campaign this spring in major rice-growing counties. They delivered information, policies, contracts, cash, and services. They signed contracts with 13,700 farms to deliver 78,100 mt, and expected to deliver funds of 5.63 million yuan. In some regions, farms can get a cash advance on the contract payment.

A China Grain Net report says companies are approaching the purchase of early rice with caution due to tight credit and big losses on rice last year. The article says Yihai Kerry and Beidahuang both lost a lot of money on rice in 2010. There is a rumor that Yihai Kerry will not buy early rice this year and Jiangxi's branch of COFCO will only buy high-quality rice, which means not much early rice.

Nevertheless, the government's eagerness to restock warehouses keeps demand robust and prices are rising. Farmers are said to be hesitant to sell their rice, waiting for prices to go up further. In Hunan, the price began rising in July and is about 2.34 yuan/kg, well above the minimum of 1.12 yuan/kg.

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