On July 3, 2013, China's National Development and Reform Commission announced increased corn price supports for this fall's crop. The increase of 5-to-6 percent locks in high prices for Chinese corn this year while global prices are facing downward pressure due to an expected record U.S. corn crop.
The "temporary reserve" program will operate--as usual--in China's three northeastern provinces and Inner Mongolia Autonomous Region. Support prices for corn are set at 1.13 yuan/500g for Liaoning and Inner Mongolia, 1.12 yuan/500g for Jilin, and 1.11 yuan/500g for Heilongjiang Province. The prices are .06 yuan higher than those set for the 2012/13 crop.
The support price for Liaoning/Inner Mongolia is approximately $369 per metric ton or $9.36 per bushel at the current exchange rate. According to the USDA/AMS weekly grain report, the Chicago futures price for September corn is $5.25 per bushel and December corn is $4.91 per bushel.
Reported prices for corn at Liaoning ports on July 5 were $380-382. Corn from northeastern China at Guangdong ports in southern China were in the $404-406 range.
The announcement comes much earlier than in previous years--normally the support price for corn is announced after the harvest sometime in November-January. The price increase and the early announcement were anticipated in May when Premier Li Keqiang called for a "reasonable increase" in the corn price.
According to NDRC, the announcement is intended to benefit farmers and increase their enthusiasm for planting grain. However, the price support won't directly affect this year's corn output since the crop has already been planted.
Why announce an increase in the price support two months before the crop is harvested? A commentary from China corn net surmises that the government wanted to send a strong signal to the market that prices should be higher. The commentary describes China's current corn market as "seriously distorted"--in other words, it suggests that market prices are artificially low due to the impacts on feed demand during the first half of 2013 stemming from the downturn in the pork market and effects of avian influenza on poultry production.
The commentary also speculates that the early price-support announcement is calculated to smooth out corn price fluctuations at the beginning of the market year. Normally, corn prices drop following the harvest as new corn becomes available. Farmers then hold on to their corn, waiting for higher prices. Corn marketing is then spread out over the succeeding months as purchasers try to pry corn loose from farmers hoping for higher prices. The commentary suggests that the early price support announcement will establish a minimum price early in the season.
The commentary also hints that the price support may be intended to benefit Sinograin, the company that holds grain inventories on behalf of the government. Sinograin bought grain at relatively high prices early in the 2012/13 market year and has been stuck with it due to weak prices in the first half of 2013. Note also that 30 mmt of corn--much of it poor quality--was purchased at support prices during 2012/13. Authorities are now preparing to auction off the stockpiled corn and shift 5 mmt of northeastern corn inventories to southern China. The commentary suggests that the announcement of a higher 2013/14 support price will push up prices for old-crop corn already in inventories, making it easier to sell at a profit.
The "temporary reserve" program will operate--as usual--in China's three northeastern provinces and Inner Mongolia Autonomous Region. Support prices for corn are set at 1.13 yuan/500g for Liaoning and Inner Mongolia, 1.12 yuan/500g for Jilin, and 1.11 yuan/500g for Heilongjiang Province. The prices are .06 yuan higher than those set for the 2012/13 crop.
The support price for Liaoning/Inner Mongolia is approximately $369 per metric ton or $9.36 per bushel at the current exchange rate. According to the USDA/AMS weekly grain report, the Chicago futures price for September corn is $5.25 per bushel and December corn is $4.91 per bushel.
Reported prices for corn at Liaoning ports on July 5 were $380-382. Corn from northeastern China at Guangdong ports in southern China were in the $404-406 range.
| China minimum prices for corn, 2008-13 | ||||
| Year | Announce ment |
|||
| Heilong jiang |
Jilin | Liaoning, Inner Mongolia | ||
| Yuan per metric ton | ||||
| 2008 | Late Oct | 1480 | 1500 | 1520 |
| 2009 | Nov 27 | 1480 | 1500 | 1520 |
| 2010 | Jan 17, 2011 | 1780 | 1800 | 1820 |
| 2011 | Dec 14 | 1960 | 1980 | 2000 |
| 2012 | Nov 15 | 2100 | 2120 | 2140 |
| 2013 | July 3 | 2220 | 2240 | 2260 |
The announcement comes much earlier than in previous years--normally the support price for corn is announced after the harvest sometime in November-January. The price increase and the early announcement were anticipated in May when Premier Li Keqiang called for a "reasonable increase" in the corn price.
According to NDRC, the announcement is intended to benefit farmers and increase their enthusiasm for planting grain. However, the price support won't directly affect this year's corn output since the crop has already been planted.
Why announce an increase in the price support two months before the crop is harvested? A commentary from China corn net surmises that the government wanted to send a strong signal to the market that prices should be higher. The commentary describes China's current corn market as "seriously distorted"--in other words, it suggests that market prices are artificially low due to the impacts on feed demand during the first half of 2013 stemming from the downturn in the pork market and effects of avian influenza on poultry production.
The commentary also speculates that the early price-support announcement is calculated to smooth out corn price fluctuations at the beginning of the market year. Normally, corn prices drop following the harvest as new corn becomes available. Farmers then hold on to their corn, waiting for higher prices. Corn marketing is then spread out over the succeeding months as purchasers try to pry corn loose from farmers hoping for higher prices. The commentary suggests that the early price support announcement will establish a minimum price early in the season.
The commentary also hints that the price support may be intended to benefit Sinograin, the company that holds grain inventories on behalf of the government. Sinograin bought grain at relatively high prices early in the 2012/13 market year and has been stuck with it due to weak prices in the first half of 2013. Note also that 30 mmt of corn--much of it poor quality--was purchased at support prices during 2012/13. Authorities are now preparing to auction off the stockpiled corn and shift 5 mmt of northeastern corn inventories to southern China. The commentary suggests that the announcement of a higher 2013/14 support price will push up prices for old-crop corn already in inventories, making it easier to sell at a profit.
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