China seen cutting state corn prices as stocks rise

China, the world's second-largest corn consumer, is likely to cut the government support price for the 2015/16 harvest to encourage greater use of domestic grain and bring down the volume of cheap imports, industry sources said. Beijing's buying scheme, aimed at boosting rural incomes, has pushed domestic corn prices more than 30 percent above global prices in the past year, leaving millions of tonnes in stockpiles and driving up imports of cheap corn and substitutes such as sorghum, barley and distillers' grain.
The government may cut its price by about 10 percent from last year's level and could also offer rail freight subsidies to feed mills in consuming provinces in the south to make domestic corn more competitive with overseas grain, one source said. "The government hopes the price cut could turn around the current situation, which is seriously upsetting supply due to cheap overseas imports," said the source, who declined to be identified.
The stockpiled corn, relatively expensive and often of poor quality, is not attractive to feed mills. State corn sales are expected to remain sluggish throughout the year. Lu Jingbo, vice-administrator of the State Grain Administration, told a conference last week that Beijing had not yet made any decision on corn prices.
The mooted price cut, together with transport subsidies, should give a domestic corn price of about 2,000 yuan ($322) per tonne for mills in the south, about the same as for US sorghum for September shipment, one source said. US sorghum, almost all exported to China, is traded at premiums over US corn due to robust Chinese demand. The 2015/16 season starts in September. Analysts expect the government to be sitting on some 120 million tonnes in its stockpiles ahead of an expected record harvest late this year. "The market is expecting state stockpile prices to fall. Given the large use of substitutes and poor demand, it makes no sense to support domestic corn prices at such a high level," said Hong Ming, an analyst with Yongan Futures Co Ltd.