Tuesday, October 18, 2016

China Corn Price Rebound Temporary?

As China's corn marketing season is about to enter its peak period, there is some optimism about a recent rebound in prices, but others say declines in prices will resume.

As of October 2, the corn harvest was 90-percent complete in Shandong Province and 70-percent complete in Henan. However, it was just 10-percent complete in Jilin Province in the northeastern region. The corn harvest will not be complete in the northeast until November.

This is the first time in nine years that corn will be marketed without a "temporary reserve" price floor to act as a safety net. Chinese leaders appear committed to the free market approach to determining corn prices, but officials are leaning on companies, officials, and grain depots to make sure prices don't fall too fast, too far.

Corn prices rebounded about 50-100 yuan per metric ton during late September and early October. While this rebound doesn't make up for the roughly 300-yuan decline in September, Futures Daily reports that this is a sign that Chinese corn price have bottomed out. However, this article may be part of a propaganda blitz designed to fortify the confidence of farmers disheartened by the declining trend in prices.

A Donghai Futures analyst thinks the rebound may be only temporary. The price rebound was in the North China region where there are a lot of industrial processors and mills who have been holding minimal commercial inventories and buying cautiously. Farmers had not sold that much corn. There is reason to be less optimistic about prices as corn comes on the market in the northeast--which accounts for 40 percent of national corn output and has less robust downstream demand. Hog prices have fallen from their peak in June, and poultry and egg industries are still in the doldrums.

On October 14, the grain bureau launched a northeastern "guidance survey" that will canvas grain depots, enterprises, and processors in Heilongjiang, Jilin, and Inner Mongolia. The "survey" will be part fact-finding mission and part arm-twisting exercise to remind officials and enterprises of their "responsibility" to assure national food security by buying up farmers' corn, making sure there is enough space to store the corn and enough cash to buy it. Futures Daily acknowledges that "policy propaganda" (like the Futures Daily article?) is a component of the "survey".

On the same day, Inner Mongolia's branch of Sinograin issued instructions to its depots in four districts to buy corn from the new crop in order to "serve the needs of farmers selling grain." The directive set prices for each district ranging from 1300 yuan to 1420 yuan per metric ton. These are not technically floor prices, but announcement of specific prices is probably intended to set a psychological floor for prices to reassure farmers.

A Feedonline author agrees that the recent rebound in corn prices may not reflect the true state of excess supply. He thinks the next few weeks will see a lot of volatility as the corn marketing season kicks into gear. He points out that the October launch of Sinograin purchases is unusual because in many past years authorities often watched the early progress in the market before launching "temporary reserve" procurement (by Sinograin depots) in late November or December.

Another analyst reports that Jilin province's government held a meeting where attendees were urged to "win the defense of 1400-yuan" for the national corn market. in October where participants were reminded to send "positive market signals." Central government state-owned enterprises were reminded of their social responsibility, and there were directives to speed up construction of new warehouses and balance storage among different granaries.

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