Wednesday, September 9, 2015

Farm Prices Under Pressure in China

As China's fall harvest arrives, there is strong downward pressure on farm commodity prices. Downward pressure in international markets and weak demand in China are driving prices down as attempts to wall off the Chinese market from the world are crumbling.

News reports say the government is deliberating on how much to cut this year's support price for corn from last year's prices of 2220-2260 yuan/metric ton in northeastern provinces. However, early-harvested spring corn from Shaanxi and Xinjiang is already selling below 2000 yuan/mt. Prices are at or below 2000 yuan in in north China (Henan and Hebei) where some private warehouses are selling off their old corn from inventories to clear out space for the new crop--and perhaps they also anticipate a slide in prices. Chinese futures prices for January corn are trading even lower--well below 1950 yuan.

According to one calculation, the cost of U.S. corn arriving in China was estimated at 1593 yuan/metric ton, which was 119 yuan less than a year ago. China's imports of corn during July reached 1.11 million metric tons--nearly all from Ukraine--and imports of corn and its substitutes were at record levels in July.

In the final week of August, there was tepid interest in corn auctioned from Inner Mongolia reserves offered at 2350 yuan/mt. As market prices fall, interest in buying the government's expensive corn inventories wanes.

The temporary reserve program for corn operates only in the northeastern provinces (Liaoning, Jilin, Heilongjiang, Inner Mongolia). With expectations that the temporary reserve program will prop up prices in that region as prices fall elsewhere, corn processors in the northeast are at a disadvantage and have idled production lines. High prices from the northeast also attract shipments of corn from north China to arbitrage the artificial price difference.

China's wheat market is also under downward pressure. There were virtually no sales from the latest auctions of wheat reserves. Now, even the price of relatively scarce high-quality wheat is falling due to weak demand. Medium and small flour mills are operating at about 30% of capacity. According to Futures Daily, wheat traders in Henan Province say they have not been paid for quality wheat they sold to mills this summer.

Others in the industry say that there is still an insufficient supply of quality wheat in the domestic market. There is reportedly strong demand for imported wheat that has recently arrived at Chinese ports.


Unknown said...

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