Migrant Survey: Chinese Job Growth Slows

China's rural migration stream has slowed to a trickle and wage growth has slowed sharply, according to the latest annual survey of migrant workers conducted by the National Bureau of Statistics.

The Statistics Bureau has estimated the number of rural people employed off-farm (农民工)each year from 2008 to 2016. The figures include those working near their permanent residence and those working away from their residence (migrants), but the survey excludes people working exclusively on farms. Note that farm employment and off-farm employment are not mutually exclusive: farming is now largely a part-time phenomenon in China. Many of the people counted by these employment estimates probably also spent some time farming. (The survey figures show that rural employees worked an average of 10 months during 2016.)

According to the survey, 281.7 million rural people were employed off-farm during 2016, an increase of 4.24 million from 2015. The number of rural people employed was equal to 36 percent of national employment in China during 2016, up from 30 percent during 2008 and 2009. The increasing percentage reflects millions of rural people moving from subsistence farming to paid employment.

Most of the rural residents' job growth during 2016 reflected increased employment near home; the number of migrants working away from home increased by only 500,000. Growth has slowed from the torrid pace set during 2009-2012 when employment grew 10-to-12 million annually. During those years of rapid growth, most employment gains were among migrants. The number of people working near home has been less volatile.

While there are some structural changes reflected in these numbers, the slower growth in employment largely reflects the cooling economy since 2012. The countryside has always been a reservoir of rural labor: migration to cities surges when the economy is in a growth cycle, and slows--or even reverses--when the economy tanks. Employment declined last year in two procyclical sectors--manufacturing and construction. Services employment increased.

Wage growth remains strong. The average monthly income of 3,275 yuan ($493) earned by employed rural residents during 2016 grew 6.6 percent from the previous year. Again, that was much slower than the double-digit growth posted from 2009 to 2013. Last year's wage growth was the slowest since the 5.7-percent growth in wages during the 2008-09 financial crisis. During 2016, the average wage earned by rural workers in northeastern provinces--the region hardest hit by the economic slowdown--actually declined.

While wages paid in Chinese currency went up 6.6 percent, the value of those wages in U.S. dollars increased less than 1 percent because the Chinese currency depreciated against the U.S. dollar. Calculations show that the average wage of rural Chinese workers was $2.25 per hour in 2016.

The peak in rural wage growth was during 2010-11 when rising wages and currency appreciation combined to boost the dollar-value of rural Chinese wages by over 25 percent. As nominal wage growth tailed off and the Chinese currency depreciated over the last three years, the dollar value of wage growth in China has plunged.

The slowdown in job creation is bad news for the planned structural adjustment of China's agricultural economy. The farming sector needs to shed labor in order to raise labor productivity, reduce unit costs of farm production, and increase earnings per farmer to make farming a viable career. To do this they need to entice more villagers to turn their land over to the new generation of scaled-up farmers, but a slowdown in job growth makes it harder to move people off the land. To make matters worse, crop prices have been stagnant or declining, and production of pork and poultry is down. Poor conditions in the farm economy depress rural income and reduce the rents that scaled-up farmers are willing to pay villagers for their land.

It's probably no coincidence that government officials are injecting large sums of cash into the countryside this year through a massive rural poverty alleviation push and initiatives to build high-standard farms and boost processing of farm products.

SOEs Buy 30% NE China Corn in 2016/17

Three State-owned companies purchased 30.562 million metric tons of corn from China's 2016/17 harvest, according to a Ministry of Agriculture update on the agricultural economy today. The purchases by the three companies--Sinograin, COFCO, and China Aviation--together accounted for 30.7 percent of all corn procured in northeastern China during the 2016/17 marketing season.

According to figures released at today's meeting, a total of 99.53 mmt of corn had been procured from the 2016 crop in the northeastern provinces as of April 23, 2017. That total is 48.316 mmt less than during 2015/16. The sharp decline reflects the ending of the "temporary reserve" program for 2016/17. While there was no formal price support program during 2016/17, the three state-owned companies were urged to buy corn in the northeastern provinces to ensure that farmers were able to sell their grain. Presumably, Sinograin, COFCO, and China Aviation are still holding much of the corn they purchased.

Chinese corn prices plummeted during 2016/17, even with purchases by the three companies propping up the market. The Ministry of Agriculture reported that corn prices received by farmers in the northeastern provinces were down as much as 30 percent from a year earlier. The National Bureau of Statistics reported that producer prices for corn were down 20 percent during the first quarter of 2017 compared with a year earlier.

In a separate announcement, Henan Province announced that corn will no longer be given subsidies for agricultural insurance premiums this year. This move appears to be meant to discourage corn production this year. The Province reported that its area planted in corn fell for the first time in 15 years last year, but the decrease was only 27,000 hectares on total planting of over 3.3 million hectares.

Cash for Countryside and Migrants Boost Rural Income

China's rural residents saw faster income growth than urban residents during the first quarter of 2017, according to China's National Bureau of Statistics. Rural income growth came from migrant workers' income, injections of fixed asset investment, and soaring transfer payments to rural residents.

Average disposable income for urban people in China averaged 9986 yuan/month, while the rural average remained far behind, at 3880 yuan/month. But the statisticians found that the urban-rural gap between incomes is closing, which keeps China on track toward its goal of a relatively well-off society by 2020. Urban disposable income rose 6.3 percent, but rural disposable income rose 7.2 percent. The average urban income is now 2.57 times the average rural income--that's .02 less than a year ago!

China's agricultural GDP grew only 3 percent year-on-year, less than half the reported overall GDP growth of 6.9 percent in Q1 2017. Only a few crops like sugar cane and winter vegetables are harvested in the first quarter. Sugar production was up 6 percent, according to estimates by the Ministry of Agriculture. Meat production was stagnant at 0.5 percent from a year earlier. The swine inventory was up 0.1 percent from a year ago, essentially unchanged.

According to the National Bureau of Statistics, corn prices received by Chinese farmers during Q1 2017 were down 19.9 percent from a year earlier, while wheat prices were up 3.7 percent and rice prices were up 0.5 percent from a year earlier. Vegetable prices were down 11.6 percent, but fruit prices were up 9.4 percent from a year earlier. All livestock and poultry prices received by farmers fell from a year earlier. Poultry prices were down 7 percent and egg prices were down 17.5 percent from a year earlier.

The number of rural migrant workers totaled 172.53 million during Q1 2017, 2.7 percent more than the same time last year and a record high, according to the Bureau. The monthly income of rural migrants averaged 3483 yuan, up 6.4 percent from a year earlier. The combination of more rural people working off farm and higher wages pulled up the rural income average.

While agriculture had GDP growth of just 3 percent, its fixed asset investment was up 24.6 percent from a year ago, more than double the year-on-year growth in total fixed asset investment which grew 9.2 percent from a year earlier. These totals do not include fixed asset investment by rural households, but their investment is primarily in building and refurbishing their houses.

China is back to its old growth model of building things. Infrastructure investment was up 23.5% from a year ago, public infrastructure was up 27.4 percent, transportation was up 20.2 percent, and water management investment was up 18.3 percent from a year earlier.

Rural transfer payments are booming. The average rural income from transfer payments was 746 yuan per person, up 11.7 percent from a year ago. The National Bureau of Statistics attributes this rise a 52-percent increase in rural residents' revenue from government purchases of goods and services, a 22.5 percent increase in agricultural subsidies, and a 34.5 percent increase in aid to individuals.

False Grain Statistical Reporting to be Addressed

An initiative to crack down on false statistics was announced in an April 10, 2017 circular posted on China's State Administration of Grain web site.

While progress had been made in reforming the statistical system for the grain marketing system, the circular said, "there are still some problems that cannot be ignored." The circular acknowledged that grain administrative departments in some localities do not give statistical work a high priority, some grain enterprises file untrue statistical reports, and it is urgent to raise the quality of statistical work.

The grain administration system will make renewed efforts to improve the truthfulness of grain data through several measures, although no details of the measures have been revealed. These include a grain statistics responsibility system and a statistical control system to check the numbers and hold officials responsible for quality of statistics. There will be "strict accountability" for local officials who falsify participants in statistical surveys or report fake numbers. Officials are instructed to find the reason for abnormal data and avoid passing up "sick data" from one level to the next which can lead to wrong policy decisions. Training and organizational changes will also address the false data problems.

Note: this reform applies to statistics on procurement, sales, and reserves of grain which are reported by local warehouses, granaries, and processors on forms filed and passed up through the grain administration. In particular, the massive procurement of corn reported in 2015/16 exceeded the amount of corn produced in at least one province--but the circular did not mention this or any other examples of false statistics. This particular initiative does not cover statistics on grain production, which are collected and published by the Statistics Bureau, a completely different administrative organization with little or no interaction with the Grain Administration. All statistical agencies are under orders to improve the "truthfulness of statistics" based on dictates issued by the State Council.

China Corn Subsidies Distributed to Farmers

Corn producer subsidy payments are being distributed to farmers in northeastern China. An informational bulletin assures farmers that they can expect payments soon as local authorities complete the procedures and disburse payments that vary from 130 to 200 yuan per mu.

Farmers check subsidy distribution list 

(source: "What do you do if you lost money growing corn? The corn subsidy is here!")

The corn producer subsidy is being issued in two batches. The first disbursement of 30 billion yuan ($4.35 billion) has already been distributed and the second batch of 9 billion yuan ($1.3 billion) is in process. Jilin, Liaoning, and Inner Mongolia have disbursed the second batch of funds to local governments, but Heilongjiang is still processing and verifying information. The first batch of subsidies was estimated to be 135 yuan per mu, on average, and the second batch 40 yuan per mu. Local authorities deducted 10 percent from their corn subsidy fund allocation (10% of 30 billion yuan) to use for a crop planting structural adjustment program. The amount of the subsidy per mu of corn planted is calculated by each local government, so it varies from place to place.

According to the bulletin, Inner Mongolia's Chifeng Municipality has distributed 202 yuan/mu (equal to about $178 per acre) for the two subsidies combined to its 520,000 corn producers. Jilin Province is verifying the subsidy fund allocation to cities based on a formula that gives equal weight to area and output of corn. Farmers in Yushu Municipality are expected to receive 160 yuan/mu ($141 per acre). The highest subsidy in Jilin Province is 209 yuan/mu in Gongzhuling Municipality, and the highest in Liaoning is 200 yuan/mu in Huludao Municipality's Nanpiao District.

Rural households, family farms, farmer cooperatives, and "outside entities" renting land to grow corn on legally approved land are entitled to a corn producer subsidy. There are several instances where the subsidy will not be paid:

1. Corn planted on land that is not designated as "cultivated land", i.e. corn planted on land designated for forest, as grassland or wetland.
2. Corn planted on land placed in a "grain for green" land retirement program to convert farmland to forests or grassland.
3. Corn planted on cultivated land that has been requisitioned by the government with compensation paid to farmers (farmers have resumed planting crops without permission on some requisitioned land that is unused because the development project has not started.)
4. Corn planted on rented land for which there is no signed rental agreement specifying which party is entitled to subsidy payments.

A second bulletin explains the subsidy process. Farmers had to apply to their village committee to receive the subsidy. The village committee compiled information from their village members and passed it up to the township agricultural officials who compile it again and publicly post subsidy applicants and their reported area for at least 7 days. If no one raises objections, the information is compiled and verified again and delivered to the county financial bureau.

The central government disburses a set amount of funds in two batches to each of the four provinces where the program operates (see table below). The provinces then allocate funds to municipalities and counties based on the data submitted by farmers. Each locality calculates the subsidy per mu of land and disburses it to special electronic bank accounts for each farmer accessible with a bank card.

2016/17 corn producer subsidy funds disbursed to Chinese provinces (million yuan)
	First batch	Second batch
Total	30,038.60	9,000.00
Inner Mongolia	6,625.15	2,045.20
Liaoning	4,577.88	1,413.20
Jilin	7,263.06	2,242.11
Heilongjiang	11,572.51	3,299.49

see: http://www.ncw365.com/uploadfile/2016/1114/20161114111046134.jpg and http://www.mrrao.com/article/53421.html

Imports of Corn and Substitutes Continue

While China's Ministry of Agriculture has proclaimed that domestic corn prices have fallen enough to choke off imports, commercial reports say imported corn substitutes still have a clear price advantage over Chinese corn. Low prices of imported corn and substitute grains could undermine plans of Chinese authorities to release domestic corn reserves into the market in coming months.

According to a report this week, imported substitutes for Chinese corn retain a clear price advantage. Corn markets in northern and northeastern China are generally tight, maintaining firm prices for domestic corn shipped to southern corn deficit regions. At Guangdong Ports, the cost of corn arriving from ports in Liaoning Province on April 12 was 1730-1750 yuan/mt, up 30 yuan from the week before. However, the cost of imported U.S. sorghum was reported to be 1640-1650 yuan/mt, and imported Australian barley cost 1540-1550 yuan/mt. The report said feed mills are gradually increasing their use of imported corn substitutes.

The report said 28 vessels of Ukrainian and U.S. corn totaling 1.54 million metric tons (mmt) are due to arrive at southern China ports during May-August, 2017--the same time Chinese authorities will be holding auctions of domestic corn reserves. Another 8 vessels of sorghum and 8 vessels of barley are also reportedly on the way. As of April 12, commercial inventories of feed grains at Guangdong ports were already adequate, at an estimated 1.3 mmt.

One report describes "psychological warfare" between participants in China's domestic corn market as they negotiate prices with rumors swirling about upcoming auctions of government corn reserves. At present, corn supplies are tight in China's corn-producing regions and prices are firm as farmers have sold most of this year's new crop of corn. The price for corn arriving at ports in northeast China's Liaoning Province ports is 1600-1610 yuan/mt and the reported price for shipment in bulk is 1650-1660 yuan/mt.

But next month the government will begin auctioning old corn from its reserves, and rumors of large volumes and low prices for the corn auctions are circulating. Some rumors say opening prices could be as low as 1250-1350 yuan/mt. Market participants, therefore, worry about being caught with high-cost inventories if the auctions put downward pressure on prices next month. Some warehouses at the northeastern ports have reportedly stopped buying new corn, forcing traders to cut prices slightly by about 10 yuan/mt despite tight supplies of new-crop corn.

Downstream demand for corn is reportedly soft at present. Hog inventories are reportedly at a low level and there has been a large drop in demand for poultry feed. Starch processors are profitable in Jilin Province where the provincial government is giving a 200 yuan/mt subsidy and corn prices are relatively low, but processors in Shandong Province are losing money paying 1700-1780 yuan/mt for corn.

Authorities appear poised to manage the corn auctions to prevent downward pressure on market prices. Hunan Province's branch of Sinograin, China's Grain Reserve Corporation, held auctions of 32,150 metric tons of corn produced in 2015 over the last two weeks to test the waters, but the minimum price was set at 1800 yuan/mt, above prevailing prices. The auctions sold 44 percent of the corn offered.

The availability of lower-priced imported corn and substitutes will constrain the release of old corn from reserves over the next 4-5 months. With cash prices for domestic corn higher than the cost of imported sorghum and barley at southern ports, sales of old corn from reserves may be slow unless authorities allow auction prices substantially lower than current cash prices. If authorities want to keep market prices firm they may be forced to continue holding old corn in reserves.

Regional Delineations to Protect Chinese Crops

China's latest food security scheme is to designate 67 million hectares of cultivated land as "functional regions" devoted to 3 cereal grains and "protected regions" for 5 other key crops. These regions will be targeted for strict controls of land use, investments in infrastructure, subsidy programs, nurture of new types of farm operations, close monitoring by remote sensing, detailed mapping and databases.

The program was announced in an April 10, 2017 State Council document, "Guidance on Establishing Functional Regions for Grains and Protected Areas for Major Crops." According to the document, this regional delineation approach is part of President Xi Jinping's new concept and strategy for national governance. The document explained that areas best suited to each crop will be "scientifically delineated" to maintain "basic self-sufficiency" in cereal grains and maintain effective supply of other major crops.

The total area covered by these regions is planned for 1.04 billion mu (69.3 million hectares), which encompasses 51.2% of China's current cropland base, and 67% of "permanent farmland." Grain functional areas for rice, wheat, and corn are planned to cover 60 million hectares, and protected areas for soybeans, cotton, rapeseed, sugar, and natural rubber will cover 15.9 million hectares (note: the two types of areas sum to more than the total because some land will be included in more than one category). The targeted size of each crop's functional or protected area encompasses most of the area planted in each crop during 2016 (see table).

China's plans for functional and protected crop regions
	Targeted region area	National area planted, 2016
	Million hectares
Two regions combined	69.3
Grain functional regions	60.0
--Rice	22.7	30.2
--Wheat	21.3	24.2
--Corn	30.0	36.8
Major crop protected regions	15.9
--Soybeans	6.7	7.2
--Cotton	2.3	3.8
--Rapeseed	4.7	7.5
--Sugar	1.0	1.6
--Natural Rubber	1.2	na

In a Q&A with journalists, Minister of Agriculture Han Changfu explained that this idea originated with Zhejiang Province which designated 8 million mu as a functional grain production area in 2010. Directives to establish national functional areas for grain and protected areas for other crops have been included in the State Council's "Central Document Number 1" each of the last three years, and the idea was included in the 13th five-year plan.

It will take 3 years to delineate the plots of land to be included in the functional and protected regions by giving instructions to provinces and to successively lower levels of government to choose suitable fields. The plan will take 5 years to get up and running. Relatively good, flat land will be chosen for the key regions, while land on steep slopes, wetlands, other land eligible for land retirement programs, and land with slope of 15 degrees or more will be excluded. In plains, contiguous fields of 500 mu (33 ha) will be chosen to facilitate mono-cropping, investment in irrigation networks, roads, mechanization and infrastructure. Smaller contiguous fields of 50 mu (3.3 ha) will be chosen in hilly regions.

Land use plans will be strictly enforced within the regions to ensure that a minimum production capacity is maintained. Investment in fixed assets will be focused on the regions, and reforms of agricultural lending and credit will also be targeted to these regions. Maps and complete records of each plot of land will be stored in a database, and management will be precise and automated. Fields will be monitored with remote sensing. Subsidies and transfer payments will be concentrated in the regions and the "precision" of subsidies will be increased to better motivate local officials and farmers. Pilot programs on price and income insurance will be explored in these regions and officials hope to achieve full agricultural insurance coverage.

While official propaganda describes this as a "new idea", agricultural officials have been issuing similar "advantaged regional layout plans" for specific commodities for decades. This time there will be more technology, more money, and strict enforcement of rules on land use.

Ministry of Ag S&D Estimates (Apr 2017)

Only modest changes were made in commodity supply and demand estimates released in the April 2017 China Agricultural Supply and Demand Estimates (CASDE) released by the Ministry of Agriculture.

Feed use of corn for 2016/17 was revised downward by 500,000 mt due to low inventories of swine and continued high imports of corn substitutes--sorghum and barley. However, 2016/17 soybean consumption was raised by 940,000 mt due to an increase in consumption of soybean meal for feed.

Corn imports for 2016/17 were revised upward to 1 mmt, which CASDE authors attribute to high operation rates by industrial processors in the northeast (the logic is not clear here, especially since the CASDE made no change in consumption of corn for industrial processing) and an increase in imports of cheap corn from Ukraine. (Note: the CASDE balance sheet has included the wrong 2015/16 corn import number since February.)

China corn supply and demand (Ministry of Ag, April 2017)
Item	Unit	2015/16	2016/17 Mar	2016/17 Apr
Planted area	1000 ha	38,117	36,026	36,026
Harvested area	1000 ha	38,117	36,021	36,021
Yield	Kg/ha	5,892	5,978	5,978
Production	MMT	224.58	215.33	215.33
Imports	MMT	5.52	0.8	1
Consumption	MMT	194.09	211.22	210.72
--Food	MMT	7.65	7.82	7.82
--Feed	MMT	121.01	133.53	133.03
--Industrial use	MMT	54.17	58.25	58.25
--Seed	MMT	1.7	1.61	1.61
--Loss and other	MMT	9.56	10.01	10.01
Exports	MMT	0.01	0.5	0.5
Surplus	MMT	35.99	4.41	5.11
*2015/16 import volume shown in CASDE should be 3.2 mmt; surplus is also overstated.

Soybean imports for 2016/17 were revised upward to 86.55 mmt, 1.24 mmt more than estimated last month. CASDE expects soybean import demand to be stimulated by low world prices attributed to a record harvest of South American soybeans. CASDE explains that the expected increase in soybean meal consumption is due to its price advantage over other feeds.

China soybean supply and demand (Ministry of Ag, April 2017)
Item	Unit	2015/16	2016/17 Mar	2016/17 Apr
Planted area	1000 ha	6,590	7,156	7,156
Harvested area	1000 ha	6,590	7,150	7,150
Yield	Kg/ha	1,762	1758	1758
Production	MMT	11.61	12.57	12.57
Imports	MMT	82.89	85.31	86.55
Consumption	MMT	96.67	99.87	100.81
--Crushing	MMT	82.89	85.50	86.12
--Food	MMT	10.35	11.18	11.18
--Seed	MMT	0.54	0.61	0.61
Loss and other	MMT	2.89	2.58	2.9
Exports	MMT	0.11	0.2	0.2
Surplus	MMT	-1.96	-2.19	-1.89

CASDE revised its estimate of 2016/17 edible oil production upward by 220,000 mt to 26.11 mmt. This reflects mainly a 200,000-mt increase in soybean oil production, which in turn reflects larger imports of soybeans. Rapeseed oil production has been revised downward by 10,000 mt due to poor growing conditions in some regions.

China edible oils supply and demand (Min Agriculture, April 2017)
Item	Unit	2015/16	2016/17 Mar	2016/17 Apr
Production	MMT	25.3	25.89	26.11
--Soy oil	MMT	14.74	15.17	15.37
--Rapeseed oil	MMT	5.6	5.61	5.6
--Peanut oil	MMT	3.01	3.18	3.18
Imports	MMT	5.81	5.6	5.6
--Palm oil	MMT	3.39	3.25	3.25
--Rapeseed oil	MMT	0.77	0.75	0.75
--Soy oil	MMT	0.59	0.58	0.58
Consumption	MMT	31.17	31.43	31.43
--Urban	MMT	20.95	21.4	21.4
--Rural	MMT	10.22	10.03	10.03
Exports	MMT	0.12	0.13	0.13
Surplus	MMT	-0.18	-0.07	0.15

No changes were made in the cotton S&D.

China cotton supply and demand (Ministry of Ag, April 2017)
Item	Unit	2015/16	2016/17 Mar	2016/17 Apr
Begin inventory	MMT	12.8	11.11	11.11
Planted area	1000 ha	3,267	3,100	3,100
Yield	Kg/ha	1,510	1,523	1,523
Production	MMT	4.93	4.72	4.72
Imports	MMT	0.96	0.90	0.90
Consumption	MMT	7.56	7.59	7.59
Exports	MMT	0.02	0.01	0.01
End Inventory	MMT	11.11	9.13	9.13

CASDE revised its estimate of 2016/17 sugar output downward by 450,000 metric tons to 9.25 mmt. Agricultural officials on the ground have observed that area planted in sugar is less than previously estimated.

China sugar supply and demand (Ministry of Ag, April 2017)
Item	Unit	2015/16	2016/17 Mar	2016/17 Apr
Planted area	1000 ha	1423	1433	1349
--sugar cane	1000 ha	1295	1270	1181
--sugar beets	1000 ha	128	163	168
Yield
--sugar cane	MT/ha	60.3	60	60
--sugar beets	MT/ha	53.85	52.5	52.5
Sugar output	MMT	8.7	9.7	9.25
--sugar cane	MMT	7.85	8.65	8.22
--sugar beets	MMT	0.85	1.05	1.03
Imports	MMT	3.73	3.5	3.5
Consumption	MMT	15.2	15	15
Exports	MMT	0.15	0.07	0.07
Surplus	MMT	-2.92	-1.87	-2.32

Price Index for Pork Futures

A pork price index will be the first item to be produced by an "action plan for information on major agricultural commodities" signed by China's Ministry of Agriculture and the Dalian Commodity Exchange on March 24, 2017.

According to the Ministry of Agriculture's terse announcement, the plan encompasses exchange of data resources, analysis of price trends, issuance of statistical indicators and exchange of personnel between the Ministry of Agriculture's Information Center and the Dalian Commodity Exchange. The first project will be an indicator showing the average price of swine carcasses leaving processing plants. This indicator is in support of a pork futures contract to be traded on the exchange.

According to the announcement, the Ministry's Information Center will become a central player in "big data" and "informatization" of agriculture. The intent of the new index is to give farmers better market information so they can make better decisions, the announcement said.



The exact same promises about more and better market information smoothing out cycles in hog markets were made when China launched a "hog price alert" system in 2009. Three different departments were supposed to issue nine statistical indicators on a weekly and monthly basis to prevent market gyrations. The indicators appear in cryptic form on hard-to-find web sites or have disappeared altogether. There has been no stabilization of the market: producers over-expanded in 2012-14 and then engaged in a mass liquidation of sows--exactly what the statistical indicators were supposed to prevent.

The tie-up between government statisticians and the futures exchange sounds like trouble in a country where few have scruples about insider trading. It also opens up the possibility that the government could manipulate futures prices. This tie-up could undermine the credibility of both Ministry of Agriculture statistics and futures exchange prices without a firm separation between government statisticians and the trading community.

Corn Purchases Wind Down; Auctions on Horizon

Make way for the corn reserve dump! China's grain reserve managers are gearing up to begin selling off corn reserves in May. Officials hope to manipulate prices so they are high enough to keep farmers happy and low enough to keep feed mills in business and to choke off imports.

A report from China Grain and Oils News web site says that the Heilongjiang Province branch of China's Grain Reserve Corporation has lowered its purchase prices for corn for all grades by 100 yuan per metric ton. The report assures corn traders that this is not an indication of the onset of a bear market for corn. Rather, the across-the-board price cut is a signal that the Heilongjiang grain reserve depots are finished buying corn for the season. Normally, the purchasing season runs through April 30, but the report says the grain reserve corporation wants to stop early this year to prepare for sales of old corn from reserves that are expected to begin in May. The grain reserve corporation wants some time to calculate just how much corn they have on hand ahead of these auctions.

The report acknowledges that the grain reserve corporation has continued to place a floor under corn prices despite the elimination of the formal "temporary reserve" price support program a year ago. The report acknowledges that Heilongjiang grain reserve depots have been buying corn at posted prices, and their purchases have been removing significant amounts of corn from the market.

A March 28 report in Peoples Daily says that these "grain rotation" purchases constitute 20% of the 90-million-metric-ton (mmt) purchases of corn in northeastern provinces during the current marketing year. That works out to 18 mmt of corn taken off the market.

As of March 25, total corn procurement by all types of enterprises in all 11 major corn-producing provinces totaled 108.65 mmt. That was down 35 mmt from the same time last year when the "temporary reserve" purchases piled up huge amounts of corn in grain reserves. The estimated 18 mmt removed from the market this year nevertheless still equals 16% of all the corn purchased in China this year. That also means another 18 mmt added to reserves which were already huge at the beginning of the marketing season last fall.

This means an even larger amount of corn needs to be disgorged from bulging reserves, extending the de-stocking process further into the future. The precedents set by cotton and rapeseed--commodities which are going through the same process 1-2 years ahead of corn--indicates that the de-stocking process will become the focus of market analysis years into the future and imports will be minimized during the process using TRQ rules (see cotton) and/or unrealistic standards for foreign material in shipments (see rapeseed).

The National Development and Reform Commission will issue documents announcing auctions of corn from reserves which are expected to begin in May. Grain and Oils News assures traders there's no need to worry that the corn dump will depress prices. The auctions will have an opening price set to prevent downward pressure on prices.  Grain and Oils News says there is no sign of a bear market on the horizon, as May and September China futures prices remain firm.

Authorities are not willing to let corn prices fall to a level that would convince farmers to reduce corn production enough to equalize supply and demand. Instead, authorities are lecturing farmers and relying on "structural adjustment" plans to engineer the switch from corn to soybeans and fodder crops. Peoples Daily says corn planting went down 19 million mu in Heilongjiang last year, but corn is still being added to reserves. Heilongjiang plans for another 10-million-mu reduction in corn area this year to reach 86 million mu.

According to a report posted by the Grain Bureau, prices paid for corn in Heilongjiang during March 20-26, 2017 covered a wide range of 1160-1440 yuan/mt. Prices in Jilin Province were 1200-1460 yuan/mt, Liaoning 1356-1540 yuan/mt, and Inner Mongolia 1260-1750 yuan/mt. Prices at ports in Dalian for corn to be shipped to southern China were 1560-1580 on March 31. In Jinzhou, the price was 1600-1620 yuan/mt. The price in the south at Guangdong ports was 1700-1760 yuan/mt.

From May to September (when another new crop will be harvested), the grain reserve corporation will try to sell off as much of their corn stockpile as possible. According to Grain and Oils News, rumors are circulating that corn reserves from 2013/14 will be auctioned at prices of 1500-1600 yuan/mt (that would be at least a 33% discount from the 2013/14 purchase price). There are also rumors of unannounced sales of 2011/12 corn reserves to distillers and ethanol producers at a price of 1200 yuan/mt (the purchase price in 2011/12 would have been at least 1960 yuan/mt).

A separate item from Grain and Oils News reports a slightly different set of rumors. According to this report, the grain reserve corporation wants to sell 1.92 mmt of 2012 corn at 1400 yuan/mt and 860,000 mt of 2014 corn at 1450-1500 yuan/mt. Another 1.11 mmt of broken northeastern corn from 2012 is expected to be auctioned at 1100 yuan/mt. This second Grain and Oils News report emphasizes the potential for the sales to add to market supplies in southern China to cool off prices and to help feed mills "solve problems" by reducing the need to import commodities used as substitutes for corn.