We're used to hearing about soaring prices in China, but last week the Futures Daily noted with surprise that corn prices have dropped below 1 yuan per 500g in the northeastern region. Corn demand has been sluggish, high moisture has created quality problems, and increases in rail and fuel costs have created some transport bottlenecks. Sinograin is carrying out "temporary reserve" purchases to prevent prices from going down too much.
The Futures Daily reported that Jilin Tonghua was paying .86-.88 yuan/500g for third grade corn with 30% moisture 30% and 1.06-1.09 yuan/500g for 14% moisture. In north china and other regions the corn market purchase price is still increasing slightly. In Henan it was nearly 1.19 yuan/500g and higher in Shandong.
Farmers have been hesitant to sell their corn since last fall's harvest since prices haven't met their expectations. According to Sinograin estimates, as of February 25 farmers in the northeast and north China plain still had 60 million metric tons of corn they had yet to sell--that's 45% of the year's expected sales volume in the northeast and 56% in north China. Sinograin estimates that farmers have about 20 percent more corn on hand this year than they did last year at this time.
Analysts say demand is sluggish due to macroeconomic factors and the slow post-holiday season, and buyers are cautious. Many processors had plenty of corn inventory prior to the spring festival and are not eager to buy. Corn inventories at southern ports are estimated at 600,000 mt. A trader in Henan Province said most of his colleagues are buying local corn and canceling plans to visit the northeast.
There was a lot of rain and snow after the harvest, so corn in the northeast has higher moisture than normally. A lot is stored on the ground and mold is likely to become more of a problem as the weather warms up. Farmers are more eager to sell to generate cash for repaying loans and spring planting.
In the northeast, good quality corn is in short supply. Price differentials for quality and between producing areas and ports are relatively large. With the surge in wheat prices since August, the substitution of wheat for corn in feed is being reversed. Feed demand is expected to increase. Sow inventories are high and the government recently decided to subsidize half of insurance for fattening hogs in central and western provinces.
Sinograin says they have purchased 12.6 mmt of corn in eight provinces as of February 25. The National Development and Reform Commission is worried about the corn situation and held two meetings in the northeast last month. They urged Sinograin to do a good job implementing the temporary reserve program to stabilize corn prices, make sure corn gets dried, prevent depots from downgrading or refusing corn, increase farmers income and give them confidence in selling grain.