Friday, November 14, 2014

China Corn Support Price Unchanged

According to information learned by Futures Daily, China's support price purchase program for 2014/15 is expected to begin by November 20 with the support price level unchanged from 2013/14. The support level is higher than current purchase prices and is expected to boost Chinese prices and add to the nation's corn stockpile. Temporary reserve purchases are expected to take place from November 20, 2014 through April 30, 2015.

Futures Daily learned from sources that the support price for corn will be the same as last year. This is a break from the practice of raising the support price annually over the last six years.

Current prices are 100-200 yuan below the support levels. Traders will be inclined to sell the corn they buy to the state reserves, thus boosting market prices.

ProvinceSupport priceCurrent prices
Inner Mongolia (Tongliao) 22602160-2180

The information is reportedly confirmed but is awaiting final approval by certain government departments. An official announcement is expected by November 20, 2014.

This year, corn can be purchased for the temporary reserve by Sinograin--the Government's reserve management corporation--as well as two other state-owned companies: COFCO and Chinatex.

Purchases for the temporary reserve will no longer be open-ended. This year there is expected to be a 40-mmt limit on the total volume of corn purchased. The limit is due to the large inventories already on hand from last year. Reportedly, COFCO will be allowed to purchase up to 12 mmt and Chinatex up to 2 mmt. Presumably, Sinograin will be limited to the remaining 26 mmt.

Purchasers will get a subsidy for their operational costs of 50 yuan/mt, down from last year.

According to other calculations, following auctions and transfers since April, authorities may have over 60 mmt of the last two years' temporary reserve-purchased corn in storage, most of it from 2013/14.

With market prices below the support prices, it looks like more corn will be added to the stockpile over the next few months. Another round of auctions to dispose of the stockpile will likely be held again next April.

It is also rumored that the subsidy for transporting corn from northeastern provinces to other parts of China will not be offered this year. Last year, it led to a perverse pattern in which prices in northeastern provinces were higher than in north China provinces like Shandong and Hebei.

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