The price of corn in China is the most expensive in the world, which makes the domestic processing industry difficult to maintain. The government is going to reduce the purchase price of corn in 20 16/ 17 by 10% to 1800 yuan, which is about $282 per ton. Previously, the government had announced that the purchase price of corn would be lowered by15/16 (from June to September of the following year).
China is the second largest corn consumer in the world. Processors use corn to produce feed, sweeteners and ethanol. The decrease in the purchase price of corn will also affect the demand for sorghum, corn wine residue and barley. Analysts in Beijing said that considering the huge inventory, the domestic corn price is still far higher than the import cost, and the government needs to reduce the corn price.
According to industry sources, the government may also provide freight subsidies to feed processors in the southern sales area where corn is purchased in the northeast. They did not disclose when the government would provide subsidies. Three industry insiders said that the government may announce a new purchase price early next year. Corn planting in China began in March.
The downward adjustment of domestic corn prices will help restrict the demand of domestic processing plants for overseas corn and put pressure on international corn prices. China is the second largest corn consumer in the world. An analyst of a state-owned think tank said that the import of corn and corn substitutes will be lower than our earlier expectations, which may be 50% or more lower than the previous year.
The government of China has to gradually withdraw from the corn storage project, because by April next year, the domestic corn stocks may surge to 200 million tons, equivalent to the annual consumption of China. The purchasing and storage project aims to protect farmers' income, but it also leads to high domestic corn prices, and processors and deep processing enterprises face losses. According to sources, in the past three years, as much as 60% of the deep processing capacity has been closed.
In September this year, China lowered the purchase price of corn for the first time since 2008. Deep processing enterprises in Northeast China also have subsidies to buy domestic corn. These measures help to narrow the 20% price difference between domestic corn and imported corn, but they are still not enough to consume stocks or encourage feed processors and sweetener manufacturers to increase investment.
However, at least one company has benefited from the decline in raw material prices. Officials of Dacheng Biochemical, Asia's largest corn deep processing company, said that last week, the company began to resume idle production lines of corn sweeteners and lysine. By the end of June 1 1, Jilin lysine production plant will be producing at full capacity with an annual production capacity of 500,000 tons.
However, the weak demand for aquaculture may limit the development of many corn processing enterprises. The stock of some poultry farmers is recovering from the epidemic, and the pig slaughter in China has led to the depletion of the stock. Analysts of COFCO Futures said that the corn demand in 20 12 years will not return to the record1.200 million tons.