Saturday, September 24, 2016

China Corn Price: How Low Can It Go?

Prices are falling as another big corn crop is harvested in China this month. This year there will be no floor under the price to catch it when it falls.

A Futures Daily reporter visited Henan, Hebei, and Shandong Provinces to investigate corn market conditions. The corn crop looks big, the quality is good, and dry weather at harvest time has been favorable for bringing in the crop. Supplies in the market are already plentiful because the government has been auctioning large volumes of corn from reserves over the past two months. The newly-harvested crop will add to the supply pressure.

The Futures Daily reporter learned from a trader in Henan Province's Minquan County that the local price is .76 yuan/500g (1520 yuan/metric ton, 13-15% moisture). He thought the corn price could fall to 0.7 yuan (1400 yuan/mt) as a greater volume of corn comes on the market. A government warehouse manager in Hebei Province told the reporter that some people say the price could fall to 0.65 yuan/500g (1300 yuan/mt), the lowest price in ten years.

On September 22, the average purchase price for new corn in Binzhou of Shandong Province was 1500 yuan/metric ton, down 22 percent from a year ago. The Xiwang Company--a prominent starch processor--was paying 1600 yuan, down 40 yuan from the day before.

Another futures market news report said prices for the first corn coming on the market in the northeastern province of Liaoning are in the range of .65 to .68 yuan/500g (30% moisture, 1300-1360 yuan/mt). Some people think the price for wet corn could fall as low as 900 yuan/mt when large volumes come on the market from the biggest producing provinces in the northeast.

The prices at ports in northeastern China's Liaoning Province for last year's corn (14% moisture) are 1750-1780 yuan/mt. The September 23 Dalian Futures price for corn delivered in November was 1530 yuan/mt, and the price for corn delivered in January or March 2016 was 1420 yuan/mt, confirming that market participants expect prices to decline as new corn comes on the market.

On September 22, China's Grain Bureau released its "Northeastern Corn Purchase Policy" which affirms that the corn price will be determined by supply and demand in 2016. The policy called for diverse operators to go into the market to purchase corn, ordered banks to supply credit, and urged local governments to give loan guarantees to corn purchasers. The document ordered local officials to ensure storage, transport, and marketing channels were available to move grain to other regions, and to make sure farmers have access to drying equipment and facilities to ensure the quality of corn. Local officials were reminded of their responsibility to assure food security.

The removal of the northeastern corn price floor this year benefits processors by lowering their cost of raw materials. Earlier in September, one commentator said there is a rumor that the government is preparing to give a subsidy to starch processors in Jilin and Heilongjiang Provinces to encourage more corn use. The rumored subsidy would be 100-130 yuan from the central government and 200-260 yuan/mt from local governments for each metric ton of corn used. The commentator estimates that corn use by these processors would rise to 20.4 mmt this year from last year's 18.3 mmt. He also anticipates that the removal of the price floor will benefit starch producers in the northeast by lowering their raw material cost vis-a-vis their competitors in Shandong, Hebei, and Henan Provinces.

With prices expected to fall, traders are "standing on the sidelines," and processors are only buying as they need corn. The Futures Daily reporter was told that farmers eager to return to their off-farm jobs may be eager to sell their corn as soon as possible.

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