Tuesday, February 25, 2014

Regional Corn Prices Distorted

Normally, corn is cheapest in China's northeastern provinces. Traders buy in the northeast and ship it to high-price locations in the south. But now the usual geographic price pattern has been reversed as stockpiling policies support prices in the northeast and avian influenza erodes feed demand in the south.

Price quotes for February 25, 2014 say the sale price for corn is about 2350 yuan/mt at ports in northeast China, and 2330 yuan in Guangdong. The shipping charges have fallen from about 50 yuan to 45 yuan per metric ton, so shipping corn seems to be a money-losing activity. Corn is still flowing south because the government is giving traders a 140-yuan per ton subsidy to ship corn out of the northeast.

China's Futures Daily reports that Sinograin, China's grain reserve management company, has bought up over 40 million metric tons (mmt) of corn for the "temporary reserve" in the northeast since the fall harvest. This is more than expected and more than last year's 30 mmt of purchases. A corn trader in Dalian estimates that Sinograin may be sitting on 50 mmt of corn, including the corn left over from last year's purchases and still unsold. The stockpiling is carried out when the market price falls below the floor price which is about $8.90 per bushel in Jilin Province this year, about double the U.S. corn price.

In southern China, the recurrence of avian influenza halted the poultry industry's recovery from the AI-induced downturn in 2013. In Guangzhou, poultry wholesale markets and poultry sales in retail markets have been shut down for the second half of February. Poultry sales are said to be off 30% in Guangzhou. Wen's Group, the biggest poultry producer, called an emergency meeting where they recommended euthanizing chicks and storing up meat to reduce the amount going into the market. Some poultry producers have cut their feed use by half.

Corn inventories at Guangdong ports are said to be 1.1 mmt, up from 400,000 mt in December. Some ships bringing corn from the northeast can't be unloaded because there is no storage space. The price for corn at Guangdong ports fell from 2470-2490 yuan/mt in early December to 2330-2340 yuan/mt February 20.

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