Global bumper harvests overwhelm grain prices: China's 11 consecutive encounters with the historic abundance of the United States

The harvest period is coming, and China is expected to have a bumper grain harvest for 11 consecutive years. However, according to the analysis of the Wall Street Journal, the official long-term acquisition policy has extremely distorted grain prices, corn prices are even three times the international price, and bumper harvests have created more problems.

Chinese officials estimate that the mainland's grain reserves will reach 100m tonnes in 2014, including rice, wheat and corn, up from 75 million tonnes in 2013. This will add to the glut of such agricultural commodities, which is weighing on prices.

China has experienced severe famine, and the food surplus is something to be proud of, but the inefficient and expensive government acquisition system has led to serious distortions in food prices. Dalian Commodity Exchange 25 corn futures price closed at 2390 yuan per ton, the Chicago Mercantile Exchange corn price is about 3.67 U.S. dollars per bushel, about 890 yuan per ton.

The picture is from the Wall Street Journal

Over the years, the government has regularly acquired at least 1 beat 3 of corn production, according to official data. State media estimate that when market prices bottomed out in the past two years, the government spent 220 billion yuan on corn.

At the same time, it is also a difficult problem for the mainland to deal with the huge inventory. Thomas Pugh, an economist at Capital Economics in London, says China accounts for about 40% of the world's corn stocks. 70% of the corn is used to feed livestock, and the rest is processed into syrup or starch.

The problem of food surplus has been a particular headache this year, as rapid growth in US crop production has pushed local prices to a nearly four-year low. Huang Jiyi, director of the Agricultural Policy Research Center of the Chinese Academy of Sciences, said the price gap encouraged traders to import corn from overseas, rather than domestic corn, which has always been expensive.

According to the website of China's State Grain Administration, Premier Li Keqiang of the State Council said that in the past, it was required to accumulate grain widely, to accumulate good grain and to accumulate good grain, but now it is necessary to reform the mechanism to ensure that it can be bought, stored and sold.

In early 2014, China began to reform the purchase system of cotton and soybeans, changing to a pilot project of target price subsidies. The method stipulates that the government will no longer buy agricultural products from the market in order to maintain prices at a certain level, but will subsidize the price difference when the market price is lower than the target price.

In addition, officials have released 10 million tons of cotton reserves since the end of 2013, which means that China's cotton import demand is likely to be low in the coming years. Us cotton futures have fallen more than 20 per cent so far this year.

Fred Gale, an economist with the U.S. Department of Agriculture, said the Chinese government's recent corn auction in Heilongjiang province fared poorly, with only 1/5 of the corn sold at 2200 yuan per ton, more than twice the price currently paid by U.S. Feed processors.

China and the United States encountered a grain oversupply in the same year. The USDA expects the U.S. corn harvest to reach a record 14 billion bushels this year. Central States Commodities Inc, a brokerage agency in Kansas City, Missouri. Corn futures have fallen 15% this year and 40% last year, and china's reluctance to buy u.s. corn will put further pressure on corn prices, said Jason Britt, the chairman.

Britt said that the lack of procurement from China is one of the reasons for the fall in corn prices, and what the market needs to do now is to fall to a price level that can attract demand.

In January this year, the Chinese government said that it would launch a pilot project of target price subsidies for cotton and soybeans, ending the collection and storage policy, starting with cotton in Xinjiang and soybeans in the northeast. In order to better play the role of the market in determining the price of agricultural products. Strategically speaking, cotton and soybeans are slightly less important.

Under the pilot approach, the government will no longer buy agricultural products from the market in order to maintain prices at a certain level, but will subsidize the price difference when the market price is lower than the target price. The purpose of setting the target price of agricultural products is to give better play to the decisive role of the market in the formation of agricultural prices, which should in turn affect farmers' grain planting plans.

In addition, China has also been releasing 10 million tons of cotton reserves since the end of last year, which means that China's import demand for cotton is likely to decline in the coming years. This dealt a heavy blow to cotton prices. Us cotton futures have fallen more than 20 per cent this year.