July 5, 2013

 

China lifts corn price to support farmers

 

 

China has lifted its support price for domestic farmers to levels well above those in global markets, which may have given a prop to world corn prices too.

 

China's National Development and Reform Commission said that it would lift the price at which it will purchase corn from growers by 6% to RMB2,220-2,260 (US$362-369).

 

The rise is aimed at supporting farmers, and avoiding them turning away from a crop crucial to keeping the country's huge hog herd fed, and its people in supplies of pork, China's most popular meat.

 

A USDA report overnight highlighted how prices of corn left over from last year are already 10% lower than last year, "due to bumper crops and a slowdown in industrial and feed use".

 

And prices worldwide this year face pressure from the prospect of a record US crop, following on from a record Brazilian harvest too. Meanwhile, Chinese corn farmers face increasing production costs, with labour and land rental rates expected to increase by more than 10% this year, USDA staff in Beijing said.

 

The upgraded support price - while a little below the levels on the Dalian futures exchange, where corn for January closed up 1.0% at RMB2,364 (US$386) a tonne on Thursday (Jun 27)- is equivalent to US$362-369/tonne, or about US$9.20-9.40/bushel, well above world market values.

 

Chicago corn for December closed at US$5.02¾/bushel on Wednesday (Jun 26), down one-quarter from highs reached 10 months ago, with prices in many other countries lower still, although China tends to buy from the US.

 

Iowa-based broker US Commodities, flagging that "competition is fierce" among corn exporting countries, said that "Ukrainian corn for October delivery is the equivalent of US$4.50 a bushel on December corn futures".

 

The gap between upgraded support prices and international values looks like boost the incentive for China to lift corn imports - a sensitive market topic given the country's potential, as a huge consumer of the grain, to alter trade dynamics.

"The hike will benefit imports," an industry analyst with a Chinese official think-tank said.

 

Indeed, such a phenomenon has already played out in the cotton market, where Chinese purchases at prices well above market, aimed at supporting farmers, has lifted domestic prices, and so encouraged mills to look abroad for cheaper supplies.

Higher Chinese cotton imports have supported international prices, which remain at historically high levels.

 

This despite world stocks being at a record high level - although with more than half in China, free-market supplies are squeezed.

 

China is now reviewing its cotton support policy because of its unintended consequences, which have included lifting prices for domestic mills and so forcing business abroad.