Tuesday, May 14, 2013

Elevated Policy Status for Corn?

As of May 5, Chinese authorities had purchased 27.5 million metric tons (mmt) of the 2012/13 corn harvest under the price support program in northeastern provinces. The totals by province were: Heilongjiang 12.95 mmt; Jilin 8.73 mmt; Inner Mongolia 3.48 mmt; and Liaoning 2.76 mmt. The total is expected to reach about 30 mmt by the end of May when purchases are now scheduled to conclude. Price support purchases are only conducted in these four provinces.

As of April 25, the grain bureau says that the total volume of corn purchased by all buyers was 102.5 mmt in 11 major producing provinces. That suggests that 27.5-mmt support-price purchases constitute about one-fourth of corn marketed has been sold. The reserve purchases constitute 13 percent of the 208 mmt corn produced.

Much of the corn purchased for reserves has high moisture content, but corn had to meet minimum standards to be purchased for the reserve. Reports indicate that a lot of corn in northeastern provinces did not meet the standards and remains unsold.

From 2008 until now, the corn support price has been referred to as "temporary reserve" purchase (临时存储玉米收购). A yumi.com commentary detected in last week's State Council announcement an elevation of the status of the corn price support when Premier Li Keqiang called for a reasonable increase in the minimum purchase price for corn ("合理提高玉米最低收购价格"). Until now, only rice and wheat had "minimum purchase prices" while corn, soybeans, rapeseed, and cotton had "temporary reserve" interventions.

The yumi.com commentary interprets the use of "minimum purchase price" for the corn price support as elevating corn to the same policy status as rice and wheat. That means the support price is announced before planting (the "temporary reserve" prices are announced after the crop is harvested) to give farmers more certainty about the price and encouragement to plant the crop. The 2012/13 temporary reserve corn price was announced in November 2012--after the corn had been harvested. The yumi.com author speculates that a minimum price for the 2013/14 corn harvest will be announced in May since there are a few farmers who haven't planted their crop yet. And in the future he anticipates that the corn price will be announced in February or March (like the rice price; the wheat minimum price is announced in September or October; cotton's program is called a temporary reserve but the price is announced before planting).

The yumi.com commentary reviews past trends in support prices to predict the new corn price. In the last two years, the corn "temporary reserve" price in Jilin Province was slightly higher than the wheat "minimum purchase" price. The early-season indica rice price was raised faster (to encourage farmers to keep producing this crop no one wants to grow--or consume). In 2013, the early rice price was raised 0.12 yuan/500g and wheat 0.10 yuan, so he anticipates the corn minimum price could be raised by 0.05 to 0.10 yuan/500g, bringing it to 1.11-1.16 yuan/500g, or 2220-2320 yuan/metric ton ($352-$368 per metric ton, or about $9/bushel).

No comments: