China plans to cut domestic corn prices in bid to shrink massive stockpiles -sources

Global Bio-chem Technology Co

26/11/2015 09:13

* Govt will cut corn support prices for 2nd yr in 2016/17 
-sources 
    * May also offer freight subsidies to some processors 
    * Refiners, feed makers hard hit by high local corn prices 
    * Beijing gradually easing away from grain stockpiling 
 
    By Niu Shuping and David Stanway 
    BEIJING, Nov 26 (Reuters) - Beijing plans to cut local corn 
prices for a second year as it pushes to reignite stalled demand 
from its crisis-hit grain processors and whittle down the 
world's biggest corn stockpile, industry sources said.     
    In its latest move to boost a sector that has struggled with 
the world's most expensive domestic corn, the government is 
preparing to slash state support prices by another 10 percent to 
1,800 yuan ($282) per tonne for 2016/17, according to three 
sources. That would follow previously announced cuts for the 
crop year that began in October. 
    Cheaper local prices could sap appetite for imports from 
processors in the world's No.2 corn consumer behind the United 
States, a move that could weigh on world prices and  0#C:  hurt 
corn exporters from the Americas to Ukraine. 
    Grain processors make products ranging from animal feed to 
sweeteners and ethanol. 
    A cut in prices could also stifle demand for corn 
substitutes such as sorghum, distillers grains (DDGS) and 
barley, which saw record Chinese imports of over 30 million 
tonnes in 2014/15. 
    "The government has to reduce the price, given its massive 
stocks and as domestic corn prices are still much more expensive 
than imports," said Qian Jianjun, an analyst with Beijing Orient 
Agri-business Consultant Co. Ltd.  
    Beijing could also offer freight subsidies to animal feed 
mills in the south of the country that ship corn from the 
northeastern growing belt, two of the sources said. They did not 
specify when this could happen. 
    The finance ministry as well as the National Development and 
Reform Commission did not respond to requests for comment. 
    The three sources, who have direct knowledge of the matter, 
said Beijing may announce the new corn price cuts early next 
year before planting starts in March. 
    "Imports of corn and corn substitutes could fall more than 
we earlier expected, dropping 50 percent or even more from last 
year," said an analyst with an official think-tank. 
    Beijing has been forced to gradually pull away from its 
controversial policy of supporting farmers through buying corn 
for national reserves, as stocks are expected to have ballooned 
to 200 million tonnes by April next year - equivalent to over a 
year of the country's consumption. 
    Higher local prices driven by the stockpiling mean that 
mills and refiners have lost cash and racked up debt, with as 
much as 60 percent of China's processing capacity shut over the 
past three years, according to refinery sources.  
     
    LIFELINE? 
    In an earlier step to offer refiners a lifeline, Beijing in 
September cut state support prices for the first time since 
2008. Corn refineries in the northeast have also been offered 
subsidies for buying local grain.  urn:newsml:reuters.com:*:nL4N11Q02Y urn:newsml:reuters.com:*:nL3N0Z1183 
    Those steps helped narrow the gap between domestic and 
imported grain prices to a difference of around 20 percent, but 
have not been enough to erode stocks or encourage broad 
investment from the animal feedstock or sweetener sectors. 
    Although at least one company has taken advantage of cheaper 
raw material prices: Global Bio-chem Technology Group Co, Asia's 
largest corn refiner, restarted its idled corn sweetener and 
lysine plants last week, an official told Reuters. 
    The lysine plant in the northeast province of Jilin will 
reach full capacity of 500,000 tonnes per year by the end of 
November, said the official, who declined to be identified as he 
was not authorised to speak with media. Lysine is an animal feed 
ingredient.  urn:newsml:reuters.com:*:nL3N1201M3 
    However, tepid demand for animal feed will stymie efforts to 
boost many corn processors. Some poultry farmers' flocks are 
recovering from bird flu and China's culling of its hog herds 
has depleted stocks.  urn:newsml:reuters.com:*:nL3N10H1RC 
    Meng Jinhui, an analyst with COFCO Futures Co. Ltd, said 
corn demand would not return to the record highs seen in 2012 of 
120 million tonnes "any time soon".    
     ($1 = 6.3782 yuan) 
 
    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ 
GRAPHIC on China, international corn prices    http://reut.rs/1LyRf3O 
GRAPHIC on China grain imports    http://reut.rs/1LySRuC 
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 (Reporting by Niu Shuping and David Stanway; Editing by 
Josephine Mason and Joseph Radford) 
 ((niu.shuping@thomsonreuters.com; 86-10-66271210; Reuters 
Messaging: niu.shuping.thomsonreuters.com@reuters.net)) 
 
Keywords: CHINA CORN/STOCKS (URGENT, EXCLUSIVE, GRAPHIC, PIX