How low will China's corn price go after new corn comes on the market? While the national "temporary reserve" policy for corn has been eliminated, there may be a flurry of micro-interventions to support corn prices and stockpile corn in other ways. Nevertheless, market players in China are expecting a sharp decline in prices after new corn comes on the market.
An article circulating on Chinese web sites this week calls on local officials, state-owned enterprises, private companies, and individual brokers to make a coordinated effort to ensure that farmers are able to sell their corn this fall to ensure national food security and "harmonious stability."
The article from something called "Farmer's Home" anticipates that China's corn market will have difficulty adjusting to the first year of "marketized" corn purchase because the cancellation of the floor price was announced too late for farmers to adjust their planting decisions. Farmers have become accustomed to planting corn year after year under the floor price policy, and the government relied on strong corn prices to boost rural incomes, according to "Farmer's Home." Another glut of corn is expected in China this year.
This year there will be no formal floor price program for corn prices, but the "Farmer's Home" author urges local officials to intervene to prevent prices from plummeting too far. The author reminds provincial and local officials of their responsibility for maintaining national food security under the "provincial governor's responsibility system" and urges them to take a leading role in coordinating purchases of corn. They should "plan ahead," fully mobilize state-owned enterprises to purchase grain, and guide diverse players to buy grain--"whoever has storage, whoever has people, whoever has money should buy grain."
Specifically, the article recommends cutting taxes for grain enterprises to encourage them to buy more corn, and it calls for a one-time subsidy to encourage enterprises to sell off old corn inventories to make room for new grain in their silos and warehouses. The article highlights the importance of "coordinating" financial organizations to ensure that credit is available to buy grain, which suggests banks will be pressured to make loans to buy grain that is likely to plummet in price. The "Farmer's Home" author tells officials to utilize news media to publicize policies and create an atmosphere of good public opinion.
The "Farmers Home" author singles out state-owned grain enterprises as key players who should play their role in maintaining national food security. The author chastises state-owned enterprises for not having a high degree of market-orientation, but he also charges them with responsibility for buying up unwanted old reserves of grain from auctions being held now ahead of the harvest. He encourages the state-owned enterprises to maintain their reliance on the IV-drip of government for funds supplied by the Agricultural Development Bank. The author urges private companies and individual grain merchants to fulfill their responsibilities to buy up grain and prevent prices from crashing.
The article endorses the objective of moving toward a
market, and the writer insists that these are only temporary measures needed to make the transition without forcing farmers to bear the losses. However,
the recommendations imply a fundamental distrust of the market
mechanism that can only be corrected by a tangle of "invisible handshakes" between government officials, public and private companies and banks to guide the
Trading in corn futures contracts on China's Dalian Futures Exchange suggests that market players expect a significant decline in Chinese corn prices this fall, despite such local policy measures. Today's price for the January 2017 contract closed at 1425 yuan per metric ton--23 percent lower than the 1850 yuan price for September contracts. The January contract accounted for nearly all of the corn futures trading on the exchange, suggesting that many traders are speculating on a crash in prices after this fall's northeastern corn comes on the market in large volumes during November and December.