(Agrimoney) – The surge in China’s corn inventories, the subject of a huge upgrade this week which surprised investors, looks poised to come to an end, despite a lingering preference by farmers for growing the grain.
China’s corn stocks, which according to US estimates account for more than half the world total, “may plateau or begin to fall gradually in 2016-17,” the US Department of Agriculture’s Beijing bureau said.
The potential for the first decline in Chinese inventories after six successive years of increase, which have lifted them by 131% on USDA estimates, comes despite the appeal to farmers of growing corn, even after a subsidy cut of 220 yuan a tonne, to 2,000 yuan a tonne, announced in September.
“Despite the reduced support price, corn remains an attractive option for most growers when compared with alternative crops,” the bureau said.
“While farmers are frustrated by the lowered floor price… the return on corn is still roughly 1,600 yuan-per-hectare higher than for soybeans, even after the corn price was cut.”
Corn vs sorghum
The comments come amid an enhanced focus on China’s corn sector, after the USDA surprised investors on Tuesday by hiking by 23.8m tonnes, to 114.4m tonnes, its estimate for inventories at the close of 2015-16.
The estimate reflected a lower assessment for feed use of the grain over the past three years, thanks to surging imports of alternatives such as barley and sorghum, as users sought alternatives to corn, whose domestic prices were maintained artificially high by the subsidy scheme.
The bureau said that its assessment for Chinese corn stocks potentially to drop in 2016-17 reflected assumptions that Beijing “allows corn prices to continue to fall, and sustains subsidies for corn consumption”.
Demand boost
The government is, besides cutting the support price for farmers, enhancing sweeteners to users in an effort to erode its huge corn inventories, particularly in the main north east growing areas.
Provincial authorities in Jilin, Heilongjiang and Inner Mongolia have raised to $25-55 per tonne, from $24-32 per tonne, direct cash subsidy to corn processors which buy supplies purchased from stage grain auctions.
While this subsidy has a deadline of December 31, extended from an initial cut-off of October 31, “industry experts expect the programme to be extended again next year”, the bureau said.
Turn exporter?
The bureau also flagged enhanced quality control efforts by state officials on corn purchased for state supplies.
The government has managed to “limit reserve purchases by more strictly enforcing quality requirements, which in turn caused corn prices to fall more rapidly”.
In fact, corn futures for May rose on Thursday by 0.6% to 1,874 yuan a tonne on China’s Dalian exchange, but they remain well below a high of 2,338 yuan a tonne set on the contract’s first day of trading, six months ago.
The combination of broadly lower prices, at a time of huge inventories, has raised some ideas that China could even turn a significant exporter of the grain.
“The Chinese corn balance sheet remains a point of concern as a policy shift could allow them to offer corn onto the world export market and/or restrict imports of substitutes,” US broker CHS Hedging said.
Chinese corn exports in 2014-15 reached a modest 13,000 tonnes, although the country did in 2006-07 ship 5.3m tonnes of the grain.
