the
corn problem
By Samar Niazi
S&P Global Platts
What will
they do with
strategic
reserves?
W
hile it had been limping along for a while,
China’s corn stockpiling policy was well
and truly buried on
March 28, 2016, when a senior official
provided details of a new mechanism
of “marketized purchases”. Less than
six months from the next harvest, and
with a year’s worth of production sitting in stockpiles, the news generated
quite a buzz.
While aimed squarely at reducing China’s huge strategic grain reserves, the move
also fit neatly within China’s longer-term
roadmap towards the overall liberalization
of its agricultural commodity markets.
Although the USDA annual report
estimates Chinese corn reserves at
103.4 million mt in 2016-17, unofficial
sources peg them at a much higher
200-250 million mt.
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The swelling of reserves initially
stemmed from China’s bid for food
security, which had turned it into a “super
importer” of grains, while also propping
up domestic farmers’ earnings by offering price floor subsidies. This resulted in
Chinese farmers dedicating large acreages
to corn, wheat and rice cultivation, with
predictable results.
One of the first consequences was that
sky rocketing domestic grains prices,
drove feed millers towards cheaper imports of barley, sorghum and dried distiller
grains or DDGs from origins like the US.
“China’s grain yield has been increasing
for twelve years. However, some structural
problems started to form, such as supply
glut in corn and short supply in soybean,”
said representatives of the Information
Office of Ministry of Agriculture in a
press conference held on May 5, 2016, also
clearly stating they are hoping to address
these issues: “Our plans for this year are
firstly, we expect to reduce corn planting
area by at least 1.33 mil hectares. Second-