Wednesday, March 21, 2012

Corn Under the Snow

A China Times (华夏时报) article from March 17 reported that farmers in the northeastern provinces are have held back a large proportion of their corn harvest on-farm, confident that prices will keep rising. A big snowfall in Heilongjiang last week left a big part of this year's corn harvest lying under the snow.

According to the article, farmers have plenty of cash and are not in a hurry to sell. Ai Jingcai, a farmer who planted 100 mu of corn last year in Heilongjiang said, "I'm not worried about selling grain...The price has been changing the last couple of days; I can sell as much as I want."

According to statistics, less than half of Jilin Province's corn harvest has been sold. In some regions farmers are holding 20% more corn this year than last year at the same time. The article reports that sales are slow all over the country. With prices high, people from all over the country are focusing on the northeast to procure their corn.

With corn trickling on to the market at a slow pace, processors are having a hard time buying corn and are buying as they need it.

The price at Dalian ports (for transport to the south) is 2450 to 2460 yuan per metric ton. A trader in Dalian said the corn price had risen 40 yuan per metric ton since January.

The reporter heard that a deficit between supply and demand is the main reason for rising prices. One grain company representative in Dalian told the reporter that this year's actual production was probably 160 million metric tons--about 30 mmt less than the government's official estimate. According to the article, corn production is near "saturation" (maxed-out) and is vulnerable to adverse weather while demand keeps growing. "Inventories of corn are very low."

According to the article, "State reserves in the northeast region, high-price purchases by processing companies, and farmers' reluctance to sell" are the main factors driving corn prices. A trader in Jinzhou (Liaoning Province) said the increased cost of getting corn to ports is driving prices up.

On the other hand, a factor cooling demand is the scarcity of working capital among traders and companies in the northeast since early in the year. Large trading companies have reduced their inventories of corn accordingly. Companies are buying corn as they need it.

This is the low-season for livestock production, so feed mill production is down, another factor cooling demand. The high corn price discourages feed mills from accumulating inventories. However, feed demand is expected to pick up in the second quarter. A Jilin Grain Group analyst thinks there is more room for increases in the corn price.

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