The main driver of increasing corn acreage was the support price that the Chinese government had set for purchasing corn from domestic farmers .
ly , the soybean planting acreage is expected to increase more than 0.4 mil hectares . Thirdly , increase the planting for more demanded grain variety and lastly , planting for rice , wheat and other grain rations will remain stable .”
As highlighted by the statement above , China ’ s agriculture industry is a highly regulated place , with the government playing a significant role in determining policy affecting the flow of agricultural products . COFCO and Sinograin are the main government owned entities that manage grain flows , buying , selling , import and export of grains , with COFCO controlling around 60 % of the domestic agriculture sector , estimates a market source . Imports are regulated by an import license system .
Corn is grown mainly in northern China , Inner Mongolia and the Chinese northeastern provinces . Storage facilities and elevators are also located near the main corn farming regions .
Meanwhile , China ’ s bulk buyers of feed corn who are the main consumers , the feed millers and meat farmers , who breed hogs , chickens and other animals are located in China ’ s southern regions like Xiamen , Guangdong , Nantong . It is therefore quite expensive to transport the corn from northern China to the southern region . Government supported prices have compounded the issue , making domestic corn purchases a very expensive business .
For China ’ s feed millers , it is often much more cost-effective to buy corn from nearby regions , from across the border , in Vietnam or to rely on cheaper priced substitutes like barley , sorghum and DDGs imported from the U . S ., adds the source . Vietnamese domestic demand for feed corn was around 2.5 million mt just 3 years ago , says a Japanese grains trader . This demand has grown to about 7 million mt per year this year . The Vietnamese meat industry has remained quite stable during 3 years , he says , so the substantial increase in feed corn imports could logically not be absorbed domestically . Explaining this trend is the widely known fact that much of the country ’ s feed grains imports are being channeled into China , undeclared .
With southern Chinese demand , in part fulfilled by these alternatives avenues of supply , during the course of about 12-13 years , domestic corn inventories began to grow apace , even as Chinese farmers ramped up production .
The main driver of increasing corn acreage was the support price that the Chinese government had set for purchasing corn from domestic farmers .
In 2014-2015 , Chinese corn harvests , which had been growing in size during the last 12-13 years had received an extra boost because of the government reduced subsidies for cotton and soybean , prompting farmers to plant corn instead , and also due to strong support prices for corn in the Northern provinces , according to USDA ’ s 2015 China Grain and Feed Annual report .
In September 2014 , the Chinese government raised the temporary reserve program price for corn to RM2,250 / mt or $ 367.36 / mt . Corn prices in Heilongjiang , Jilin , Liaoning , and Inner Mongolia were even higher , at around RM2,260 / mt . At such attractive price levels , the farmers were spurred into planting further acreage of corn . These fast growing corn reserves , now estimated at around 200-250 million mt , were one of the main targets of the agricultural reforms announced in 2016 .
In early 2015 , domestic Chinese corn prices rose primarily as a result of large scale purchases by SinoGrain . This grain was then re-auctioned to the public , but sales were quite low . While this measure increased prices in production areas in the Northeast , prices in Southeast China remained flat due to competition from lower priced imported sorghum as an alternative feed . Chinese corn stocks , which
The main driver of increasing corn acreage was the support price that the Chinese government had set for purchasing corn from domestic farmers .
had been rising , swelled further .
Corn elevators and storage facilities , which are located all over the country , are run in large part by the government owned entities COFCO and Sinograin . The administration of the storage facilities varies , depending upon the management team of the particular facility and the company , market sources agree . Some elevators contain good quality corn , which is well- stored and would get good prices from the domestic buyers , says a market source . However , the USDA has reported corruption and mismanagement at some elevators that house large quantities of corn which is not only old , but also badly maintained .
There were greater than normal levels of mold damage and aflatoxins , which are naturally occurring but carcinogenic compounds found in corn purchased by the government in FY 2014 / 15 , according to the USDA report . Another side issue that complicates the sale of corn from domestic elevators is that quality of the product is only announced by the government at the time of the auction . Due to doubts about mold and aflatoxin content , few buyers would take on the additional risk , says a Singapore based trader . In spite of the government ’ s commitment to diverting any corn with mould content between 5-20 % towards ethanol production , buyers still preferred to stay clear , and auctions failed to find takers due to high prices and inconsistent quality .
Government auctions had a success rate of only 7 % despite changes in policy which required importers to first purchase from state reserves , says the USDA report . This created a huge strain on storage facilities and led to further degradation of stored corn , since the government was not able to rotate its stocks .
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