Thursday, May 17, 2018

Corn Auctions Cost Billions

China is disgorging massive quantities of surplus corn from its reserves, but sales are costing the Chinese treasury billions of dollars.

Today China sold 1.4 million metric tons of corn from its "temporary reserve" at an average price of 1,401 yuan ($220.79) per metric ton. Most of that corn had been purchased during 2014 at support prices of 2220 yuan in Heilongjiang Province and 2260 yuan in Inner Mongolia and Liaoning Province. Thus, the sale recovered only about 62 percent of the price paid for the corn when in was purchased about 3 1/2 years ago. Additionally, authorities paid about 5% interest on loans used to buy the corn and about 86 yuan ($13.50) per ton per year to store the corn.

The total cost of corn auctioned can be estimated by applying these accounting calculations to auction results reported on

Estimated financial losses from China's auctions of corn from "temporary reserve", 2017-18
Item May-Sept 2017 April-May 2018

Million metric tons
Grain sold at auction 48.8 25.7

Billion dollars
Revenue from auction sales 10.4 5.9
Purchase cost -17.2 -8.9
Cost of interest and storage -4.7 -3.4
Total cost of grain -21.9 -12.3
Assumes exchange rate of 6.35 RMB/US$; interest rate 5%; storage cost of 86 yuan/ton/year. Purchase cost based on temporary reserve prices.

The April-May auctions of corn have generated $5.9 billion (using an exchange rate of 6.35 yuan/dollar), but the original purchase cost of the corn was $8.9 billion. So auction sales, on average, recovered 64 percent of the original cost of the corn--not nearly enough to pay back the loans used to purchase the corn. Interest and storage cost for the corn added $3.4 billion, presumably paid for by subsidies from the Ministry of Finance. Thus, the corn cost $12.3 billion, but only $5.9 billion was generated from auction sales. The net cost to the Chinese government and/or banks of the corn sold is therefore $6.4 billion, or $249 per metric ton.

The 48.8 mmt auctioned during May-September 2017 (for which we could find auction results) generated $10.4 billion and cost $21.9 billion, a net cost of $11.5 billion for 48.8 mmt, or $236 per metric ton.

These costs do not include costs for unsold corn still held in inventories. 

Officials are eager to sell corn since interest and storage costs go up and grain deteriorates the longer the grain is held.

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