Downward Pressure on Chinese Grain Prices

By all accounts, China has had a good fall grain harvest but prices are down and farmers are holding on to their grain.

The "voice of China" broadcast reports that grain prices are down all over China. A farmer named Liu in northern Jiangsu Province harvested 2500 kg from his five mu of land (less than an acre) but "has no joy from his harvest." Traders offered 1.25 yuan per jin and he wasn't satisfied even with the government's support price of 1.35 yuan. He drove into town on November 1 to try his luck at private grain depots but came back disappointed.

With expenses rising each year, farmers need an ever-higher price to cover their costs but prices are down this year.

In Henan Province, most farmers have wire corn cribs in their yards filled with newly-harvested corn cobs. Very little has been sold because the price is just 1.07 yuan or so. Farmer Liu Xinzhong planted 900 mu (about 150 acres) of corn and harvested 1300 jin per mu. He pays rent of 500 yuan per mu (about $500 per acre) for nearly all of his land (he "owns" 10 mu). If he sells corn at the current market price, he would lose 400,000 yuan (about $65,000).

Farmers in Henan say the corn price was about 1.2 yuan per jin before the harvest (for old corn), but now the price has dropped to 1.04 to 1.05 yuan.

Officials have announced the start of price support purchase programs for rice in five southern provinces. However, for corn there has been no news about the start of price support purchases in northeastern provinces. The price support programs don't normally operate outside the four northeastern provinces.

There has been no news about soybean price support purchases either. The current market price in Heilongjiang province of 4200-4600 yuan/metric ton is below last year's support prices of 4600 yuan/mt. Market participants think the soybean support price might be held at last year's level or even reduced.

Government officials, including vice Premier Wang Yang and the grain bureau's communist party secretary, have been giving speeches and going on inspection tours to forestall the payment of farmers with IOUs and preventing difficulties selling grain.

Imported U.S. corn is said to cost about 1900 yuan per metric ton at the port. In southern China that's about 500-to-600 yuan less than domestic corn prices.

With rising costs, can China keep raising prices above international prices? Economist Li Guoxiang of the Chinese Academy of Social Sciences says China needs to consider the ability of consumers to bear higher prices. Competition from imports keep prices from rising too high. Li thinks China will ultimately have prices a little higher than international prices but it will not follow the example of Japan which has rice prices ten times the world price.