China Struggles to Support Grain Prices

China's corn glut is getting worse after its farmers produced another record crop. With demand still tepid, the government is buying up the surplus to make sure farmers are able to sell their grain.

China's National Bureau of Statistics announced that the 2015 corn crop totaled 224.58 million metric tons, 4 percent more than last year. As corn production moved skyward, it widened its lead over rice as the nation's leading crop.

In some areas, farmers have had difficulty selling their grain, but Chinese propaganda organs have been trumpeting the government's efforts to buy up corn.

According to the Jilin Province grain bureau, the government moved up its "temporary reserve" purchases a month earlier to November 1 in order to buy corn before it turned moldy.

The Heilongjiang Province grain bureau said it bought 23.5 mmt of corn for the temporary reserve and 11.5 mmt of rice at minimum prices during November. These "policy-type" grain purchases accounted for 77 percent of the grain procured in the province.

During October and November 2015, the government's Agricultural Development Bank issued loans totaling 122 billion yuan ($19 billion) to purchase 45.3 mmt of fall-harvested grain (corn, rice)--up 16.3 mmt from the same period last year. According to the article, the Bank's large loans reflect the dominance of government purchases in the market. Loans for policy-type purchases are twice as high this year, while loans for market-type purchases dropped 60 percent.

Farmers Daily was pleased to announce that farmers in Shandong Province were having no problem selling their grain. They attributed it to the large number of processors and feed mills in the province and to the temporary reserve policy in northeastern provinces that is sucking corn into government granaries. In Shandong the government has started taking measures to help farmers store grain on-farm. In Zhucheng, 11,000 model farmers got subsidies to pay for three-fourths of the cost of steel storage bins. Large-scale farmers got approval to put drying and storage units on land designated for crop production.

Farmers Daily said there was little business at grain depots during November because Shandong farmers sold their grain immediately after harvest in October so they could get back to their jobs in factories and construction sites.

After plummeting during September and October, corn prices bounced back in early November as the temporary reserve purchase program began. However, prices were still below their September level and below the 2000-yuan "temporary reserve" price floor. This past week the market appears to have become confused with prices dropping sharply in some places and rising in others.

Corn prices, select locations in China, 2015
	Heilongjiang	Jilin	Henan	Shandong	Hebei
Date	Zhaodong	Gongzhuling	Zhoukou	Zaozhuang	Shijiazhuang
	Yuan per metric ton
1-Sep	2080-2110	2190-2200	1920-1930	2100-2110	2090-2110
21-Sep	2020-2050	2070-2080	1880-1890	2020-2040	2040-2060
21-Oct	1700-1740	1800-1820	1560-1580	1710-1730	1720-1740
29-Oct	1680-1720	1800-1840	1580-1600	1670-1690	1720-1740
3-Nov	1710-1750	1800-1840	1580-1600	1750-1770	1720-1740
6-Nov	1720-1760	1800-1840	1600-1640	1810-1830	1720-1740
10-Nov	1740-1780	1830-1870	1600-1640	1850-1870	1720-1740
25-Nov	1810-1850	1890-1930	1860-1900	1890-1900	1840-1860
4-Dec	1810-1850	1940-1960	1800-1840	1890-1900	1840-1860
10-Dec	1800-1840	1960-1980	1740-1780	1790-1800	1760-1780

Corn prices are much higher in corn-deficit regions of southern China: 2200-2240 yuan in Zhejiang Province and Shanghai; 2240-2260 yuan in Hubei and Hunan, 2260 yuan in Jiangxi; 2100-2150 in Sichuan; 2160 yuan in Chongqing; and 2320 yuan in Kunming.

While authorities have pledged to let prices reflect market forces, they can't let corn prices fall enough to equilibrate supply and demand. First, they worry that farmers might abandon corn planting in huge numbers, leaving China with a big deficit in the future. Officials quote Xi Jinping's assertion that Chinese bowls must be filled mainly with Chinese food and officials warn that there must be no relaxation on food security concerns. Second, narrowing the urban-rural income gap is a key objective of the 13th five-year plan. Officials say the cherished "well-off society" maybe achieved by 2020 and brag about the miniscule narrowing of the urban-rural gap. Thus, they can't afford to allow grain prices to fall to lose ground on this objective either.