Officials Cushion Corn Price Decline

Chinese officials are taking numerous measures to cushion farmers against declining corn prices as they begin the first marketing season in a decade without a formal price floor for the crop.
As of October 23, 85% of corn had been harvested in Jilin and Heilongjiang Provinces, but only 5% had been sold. Rain and snow has slowed harvest and drying of the grain.

An October 26 Jilin Province meeting on grain procurement raised concerns about uncertainties surrounding the corn harvest and laid out five priorities:

• make sure there are people to harvest grain
• make sure there is money to buy grain
• make sure there is space to store grain
• make sure there are people to buy grain
• make sure there are people to sell grain

Officials worry that farmers may not bother harvesting their grain in a timely manner, leaving it in the field where it will turn bad.

An October 28 circular on corn procurement and sales issued by Heilongjiang Province's grain bureau exhorted each level of government officials to ensure that farmers are able to sell their grain at a reasonable price. Officials were told that the smooth marketization of grain procurement is a test of their ability to carry out a major responsibility and political task. The directive said officials should give farmers guidance on the new market-determination of prices, cutting loose from reliance on maintaining a minimum price, not "waiting to see what happens," nor "clinging to fantasies," instead giving farmers information on prices and imports. Officials were encouraged to form teams to go to villages to instruct farmers about maintain quality of grain, drying it, and preventing mold. They are also expected to form long-term marketing relationships between large-scale farmers, family farms, and cooperatives with processors, grain depots, and guide "diverse types of buyers" to enter the market.

The Heilongjiang document offers a number of suggestions for encouraging increases in corn-buying through one-time purchases of grain for government reserves, expanding processor capacity, and ramping up livestock production. State-owned enterprises, specifically provincial branches of China Grain Reserves Corporation (Sinograin), COFCO, and the National Aeronautics Corporation are expected to play a key role in buying up farmers' corn.

Banks--including the Peoples Bank of China, the China Bank Regulatory Commission, and Agricultural Development Bank of China--are expected to step up to the plate with funds to buy corn. Commercial banks and private investors are expected to provide credit support. The provincial grain bureau says a credit guarantee fund is being set up to finance corn purchases by state-owned companies.

Earlier in October, a notice announced that Sinograin branches in Inner Mongolia would purchase corn in four districts at prices varying from 1300 yuan to 1410 yuan per metric ton. Heilongjiang's Sinograin branch announced an initiative to purchase 440,000 metric tons of corn at 1400 yuan/mt. Jilin Province's Sinograin branch and the provincial grain reserve corporation have a plan to "rotate" 4.2 million metric tons of corn at 33 warehouses and transfer 1.35 mmt out of the province. The corn price in Jilin is reported to be 1400-1500 yuan/mt.

Hebei--a province outside the northeast--also has a plan to encourage its Sinograin warehouses to buy corn and earmark 6 billion yuan for loans to finance corn purchases by "dragon head" processing enterprises.

A number of subsidies for buyers are described by one widely-posted article as a "red envelope" for the northeastern region's corn processing industry.  Liaoning Province led off by announcing a subsidy for manufacturers of corn-based starch, amino acids, sweeteners and alcohol for each ton of corn they use. Heilongjiang Province announced a continuation of subsidies for corn processors, rumored to be 300 yuan/mt. Jilin Province is expected to announce a 200-yuan/mt subsidy that will be "icing on the cake."

A 13% value added tax rebate for exports of corn starch and alcohol products took effect September 1. A subsidy for corn transported out of the northeastern region to the other 27 provinces is rumored.

Measures promoting corn purchases in the northeast are described as "a defense of 1400" to prevent the price from falling below 1400 yuan per metric ton, 30% less than last year's "temporary reserve" floor price.