Tuesday, March 19, 2013

Propping Up Corn Prices in Northeast

With sluggish demand, high moisture content in corn, and high costs of transporting grain, corn prices in the northeast have been weak. Sinograin--China's grain reserve management corporation--has been purchasing corn in northeastern provinces to prop up prices.

Sinograin's Heilongjiang branch has bought 5.5 million metric tons of corn to support prices so far this season. In Jilin Province Sinograin had set up a research group that was making assessments of grain quality, market prices, farmers' selling expectations and processors' inclination to purchase corn.  In Inner Mongolia they have bought 1.78 mmt and opened additional depots to buy grain at support prices.

Officials are worried that high moisture levels of the corn will cause the corn to get moldy. They are urging farmers to dry their corn themselves and making sure granaries don't end up holding rotten grain.

In Heilongjiang, the Sinograin depots are offering special services to large grain farmers (粮食大户), coming to the farm to buy and arranging discount prices for grain that doesn't meet purchasing standards.

"Down, and down again," was one article's description of the bearish corn market in northeastern China in the first week of March. Feed demand is off for several reasons. First, the months after the Chinese new year holiday are a seasonal low period for meat consumption. Hog prices are down and many farms are experiencing losses. Farmers are hesitant to build up animal numbers since prices are down. Moreover, the scare about drug use on chicken farms crimped chicken production. According to one report pigs have been catching cold (supposedly this was the main cause of death of pigs floating in the Shanghai river), further discouraging farmers.

According to one farmer's online posting, hog producers have two main strategies to cut costs during periods of low prices. One is to strengthen overall farm management, reduce disease, and delay farrowings. A more immediate impact on costs can be achieved by switching to cheaper, low-quality feed. He warns high-end feed mills to expect a decline in demand.

Increased transportation cost is affecting demand for northeastern corn. After the Chinese new year, rail rates for transporting grain to the south were increased 10-to-20 yuan.

Corn buyers are focusing on north China plain regions--Henan, Hebei, and Anhui--where the corn crop was quite good last fall.

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