Stockpiling of corn to be scrapped

Move could bring domestic prices down, reduce imports

China is expected to scrap its corn stockpiling scheme by as early as next year as it battles to reduce mammoth State reserves that account for more than half of global stocks.

That could end artificially inflated domestic prices and curb imports, hurting farmers in top corn producer the US which is already hit by a Chinese crackdown on corn cargoes containing an unapproved genetically modified strain.

The death of the scheme would trail the demise of similar programs for cotton and soybeans, which are being replaced with systems of direct subsidies for growers.

“Corn will be next after cotton and soybeans. The stockpiling (scheme) has left a large amount of stock with the government while imports of feed grains have surged,” said Li Qiang, chief analyst at JC Intelligence Co (JCI), an influential consultancy that has followed China’s grain markets for years.

“The move will come next year or the year after next,” he noted.

The corn stockpiling strategy in the world’s No.2 consumer of the grain was designed to support its huge rural workforce and boost food security.

But while it has helped raise production, it has saddled the State with massive inventory and overflowing storage facilities in key growing areas in Northeast China.

It has also pumped up local prices to the highest level in the world, stimulating demand from Chinese companies for cheaper overseas supplies. Benchmark global prices hit a five-month low on Tuesday on forecasts of ample supply.

China has promised it would gradually allow markets to set prices for agricultural commodities, reaffirming last week that it would shift away from stockpiling.

Although it is yet to specify exactly how and when this will happen, an analyst with an official government think tank told Reuters that it was “just a matter of time” until there was a change in the country’s strategy on corn.

“The government is under huge pressure for such a shift given the large corn stocks and huge financial burden,” he said, declining to be identified as he was not authorized to speak with media.

The government holds nearly 100 million tons of corn – equivalent to about half of the annual domestic consumption – with purchases in the last two years costing more than 221 billion yuan ($36 billion).

It could add 50 million tons later in the year, with a bumper harvest expected in October.

And stocks have already exceeded storage capacity, with trade sources saying some 15 million tons is lying in temporary open-air facilities.