China Struggles With Corn Stockpile

By Lin Tan
DTN China Correspondent

BEIJING (DTN) — China’s corn reserve has reached historic levels, and the government is having a hard time selling it.

"Chinese state reserve procured 83.3 million (metric) tons of 2014/2015 corn crop, much higher than last year’s 69.2 mmt," said Zhonghua Wang, a market analyst at Zhaoshang Futures in Beijing. "Government auction results in the market was poor — not too much corn was sold so far this year. As a result, the total stockpile is close to 150 million tons now."

The Chinese state reserve performs auctions every week, but end users are not active buyers because its priced higher than imported corn. At a recent weekly auction just 126,300 metric tons, or 2.4% of the 5.315 mmt offered, sold.

Wang said the government started the auctions early this year — the second week of April compared to late May last year — in an attempt to sell more from the stockpile. According to the state reserve’s data, the government has sold 3.4 MMT of corn since April 9.

"Compare that to its 150 MMT of total stockpile. It is nothing," Wang said.

China sets a floor purchase price policy to support its farmers, but there are rumors that China will lower the price next year for the first time in years.

"Some analysts said the price may be 200 renminbi per ton ($0.82 per bushel US) less than last year. Most of the people believe that the price will be lower, but not that much, maybe within 100 renminbi per ton ($0.41 cents per bushels US) less," Wang said.

Other analysts suggest the government will set restrictions on how much it will buy, perhaps only 40 mmt of new crop corn, less than half of what it bought in 2014-15.

The government paid the equivalent of $9.18 per bushel and is trying to sell it for $9.63 per bushel. It only costs $6.47 per bushel for imported U.S. corn.

China has imported 3.6 mmt of corn so far this year crop year and 4.5 mmt for 2014-15. Most of the corn imports have come from Ukraine.

Under China’s import tariff quota system, 7.2 mmt of corn can be imported with a 1% tariff. After that, the tariff rises to 64%. There are no tariff rate quotas on sorghum, DDG or barley imports, which are expected to total 9 mmt, 6 mmt and 6 mmt respectively. Wang believes those imports substitute for 16 mmt of corn.

"The livestock feed market is not good this year, and most companies do not have large storage" facilities, said Wenge Fu, vice president Hope Group, of one of the largest feed companies in China. "We are trying to maintain two months of storage, but small companies may only have 15 days."

Wang thinks market prices may be the only tool the government can use to solve the stockpile issue. If China sets the floor price for new-crop corn lower, it could help them sell corn closer to the market price.

"Unless there is a big reduction in corn production in China and the world, the state reserve will find it difficult to sell all of the stockpile in the short run," Wang said.