China's corn stocks could fall for the first time in six years next year

Although Chinese farmers are still keen to plant corn, the growth momentum of China's corn stocks may end. The latest Counsellor's Report from the USDA's Overseas Agriculture Service shows that China's corn ending stocks for 2016/17 may remain stable or begin to gradually decrease. After six consecutive years of growth, China's corn stocks are likely to decline.

Although the Chinese government lowered the price of corn storage from 2200 yuan to 2000 yuan/ton in September, Chinese farmers are still keen to grow corn. The counselor said that while supporting price reductions, corn remains attractive to most farmers compared to other alternative crops. Although farmers are dissatisfied with the reduction of corn purchase price, corn planting income is still 1600 yuan/hectare higher than soybean, even if the purchase price is lowered.

In its November supply and demand report, the U.S. Department of Agriculture unexpectedly revised up China's corn ending stocks for 2015/16 by 23.8 million tons to 114.4 million tons. The reason for the increase in corn stocks is due to the increase in the number of alternative feeds such as barley and sorghum imported from China and the downward revision of feed consumption data for corn in China over the past three years. The purchasing and storage project caused artificially high prices for domestic corn, prompting users to seek alternatives to corn.

The Counsellor said that China's corn ending stocks for 2016/17 are likely to decrease as China allows corn prices to continue to fall while maintaining corn consumption subsidies. In addition to cutting corn purchase prices, the government has encouraged deep-processing companies to consume corn, depleting huge corn stocks, especially in the northeast. Jilin Province, Heilongjiang Province and Inner Mongolia Provincial Government have increased the national reserve corn consumption subsidy provided to corn deep processing enterprises from 24-32 yuan to 25-55 yuan/ton. The counselor said that although the subsidy period was extended from October 31 to December 31, industry experts expect the project to be extended next year. The counselor also pointed out that government officials strengthened the quality management of corn storage. The government has imposed stricter quality standards and restricted purchases by the state reserve, which has led to a faster decline in corn prices.

Corn prices have fallen and corn stocks are high, prompting speculation that China may even transform into a major exporter.

CHS Hedging said China's corn supply and demand situation remains a concern because policy reforms could prompt China to supply corn to international markets or restrict imports of alternatives. China's corn exports in 2014/15 were only 13,000 tons, although in 2006/07, China's corn exports were as high as 5.3 million tons.