China’s government has agreed to buy another 20 million metric tons (mmt) of domestic corn – tripling the size of its plan to build government reserves – and may reopen the door to exports to support prices, traders said Monday, spurring speculation that soy producers could be next up for more aid.
The National Development and Reform Commission last week approved plans for the additional purchases, which were four times traders’ expectations, an industry source familiar with the results of the meeting told Reuters News Service.
"The government has decided to buy for state reserves to support prices. Exports may come later but it was still under discussion," the industry source told Reuters on condition of anonymity because the decision hasn't been made public.
"By buying altogether 30 mmt, the amount should be enough to shore up domestic prices," added the source.
Beijing has so far bought about 3 mmt of corn out of a previously approved 10 mmt. In total, the 30 mmt of purchases approved could absorb nearly a fifth of China's crop.
Of the additional 20 mmt, 8.7 mmt and 4.3 mmt respectively will be purchased from Jilin province and Heilongjiang province, the country's two biggest corn producers, traders told Dow Jones Newswires.
The government has also instructed grain reserve houses to buy 3.5 mmt each from Liaoning province and the Inner Mongolia Autonomous Region, they said.
China is expecting a record domestic harvest of 156 mmt this year, with farmers having been spurred to plant more corn by last year's surge in prices.
The price rally has since reversed, but because Beijing has been aggressive in efforts to support local prices to aid its agrarian majority, Chinese corn prices have not fallen as fast as foreign rates. They are now about 10% higher than U.S corn prices in Asia, traders say.
Now that domestic supplies are more than comfortable, Beijing seems to be moving closer to opening the door to exports that it shut down a year ago for fear it might struggle to remain self-sufficient, as its growing population demands ever more high-protein meat – and thus more corn and grains for feed.
Traders said the government may allow exports of as much as 7 mmt next year, but so far no decision has been and corn processors stays flat while trading houses have held off buying the new crop, leaving farmers struggling to sell their harvest. Allowing exports may not help without incentives.
"Chinese corn is not competitive. The issue right now is if China can find buyers for its expensive corn, not the quota it sets," said a trader with an international trading house.
The extra corn purchase also stirred speculation that the government may increase purchases of domestic soybeans on top of the 3 mmt already authorized, causing some Dalian soybean soyoil and palmoil contracts to jump by their daily limits on Monday. Traders, however, were not able to confirm the talk.
Since October, Beijing has been buying up soybeans at above-market rates, driving up physical prices and prompting many crushers in the north to turn to cheaper imports instead. But that plan is winding down and now state-run warehouses are turning back low-quality beans, causing spot prices to fall to 3,400 yuan ($496.80)/ton, 8% below Beijing's bid.
Crushers in Heilongjiang province, the country's top soy area, have begun to crush domestic beans again, traders say.
Traders said the physical market remained weak despite the approach of Chinese New Year, usually the peak consuming season for edible oils.
Editor’s note: Richard Brock, Corn & Soybean Digest's marketing editor, is president of Brock Associates, a farm market advisory firm, and publisher of The Brock Report.