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.