IGC warns over ‘far-reaching’ impact of China grain reforms

July 31st, 2015

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Category: Grains, Oilseeds

Wheat_Future_Dreams450x299(Agrimoney) – The International Grains Council, estimating that China holds more than half the world’s corn stocks, raised concerns over a potential change of policy on the grain which could send imports of barley and sorghum tumbling.

The IGC flagged “mounting” speculation that China will, as it has already done in crops such as cotton, replace a regime offering farmers guaranteed prices with a “more market-orientated policy”

The council flagged an article on the Chinese farm ministry website which “suggested that the market should also take a more decisive role in setting corn prices.

“While few specific details were provided, some local analysts have speculated that a major policy shift might be imminent.”

Huge inventories

A policy shift would address the issue of large, and rising, corn inventories in China encouraged by the government’s offer of a guaranteed price, which has risen to an average of some 2,250 yuan a tonne ($362) a tonne this year from 1,500 yuan a tonne when it was implemented seven years ago.

That compares with current export prices, excluding shipping, of $169 a tonne for US corn, $162 for Brazilian supplies, and $158 a tonne for Argentine shipments, according to IGC data.

“Farmers have sold larger amounts to the government,” the IGC said.

Indeed, the appeal of the guaranteed price has left China looking at overall corn inventories of 101.0m tonnes at the close of 2015-16, the council said – equivalent to 52% of world supplies, and an upgrade of 10.4m tonnes on the previous forecast.

“Stocks have increased to multi-year highs [and] official grain storage facilities are reportedly full.”

Sorghum ‘surge’

Meanwhile, efforts to sell down state stockpiles through auctions have met with limited success, with buyers on Friday purchasing only 71,679 tonnes of the 5.3m tonnes of corn offered at the latest weekly sale.

Many users have opted for cheaper imports, particularly of alternative feed grains such as sorghum which are not subject to quotas, which have soared.

Indeed, the IGC hiked by 700,000 tonnes to 9.7m tonnes its estimate for Chinese sorghum imports in 2015-16 – up from just 317,000 tones three years ago.

“Owing to a surge in demand from feed users in China, shipments to that country are, for a second successive year, projected to account for 80% of the world total,” sourced mainly from the US, “but with increasing amounts from Australia and Argentina”.

‘Must be very closely watched’

The prospect of Chinese corn subsidy reforms thus have potentially large implications for grain markets, the IGC said, urging that corn policy “must be very closely watched in the months ahead”.

“If introduced, such changes to support policies would likely result in some price realignment and would have far-reaching consequences for supply and demand for corn and other grains,” the council said.

“A drop in values could, for example, boost domestic corn consumption and possibly lead to a drop in sorghum and barley imports.”

“Ministers are expressing many views in State Council meetings,” said Chen Xiwen, deputy director of the Rural Affairs Leading Group, a major Communist Party decision-making body.

Chinese proposals

The comments came even amid fresh reports from China of officials mulling a grain subsidy rethink.

Media group Caixin on Friday reported that Chen Xiwen, deputy director of the Rural Affairs Leading Group, described as a “major Communist Party decision-making body”, had talked of a proposal to encourage farmers to grow other crops.

“Ministers are expressing many views in State Council meetings,” Chen added.

Analysts estimate China’s overall grain stocks reaching more than 300m tonnes by the end of the year, the report said.

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