Review of China's corn market in Q1 2016

By CCM - Q1 2016 witnessed the great changes in policy, price and import & export of corn in China's market.
                                                                                  
- Policy 
 
In 2016, the Chinese government issues some policies and measures for the corn industry.
 
• 23 April: The Ministry of Agriculture of the People's Republic of China (MOA) issued the China Agricultural Outlook Report (2016-2020), making a prediction on indexes of China's corn industry including planting area in the coming 10 years. China planned to reduce the planting area and yield of corn while increasing the consumption and export.

• 11 April: The MOA issued the Adjustment Plan on the National Crop Farming (2016-2020), planning to reduce corn planting areas and develop other corn varieties such as silage corn.

• 28 March: The National Development and Reform Commission, together with some departments, announced to cancel the purchase policy of corn for temporary storage in Jilin, Heilongjiang and Liaoning provinces as well as the Inner Mongolia Autonomous Region and then adjust to a new mechanism – "market-oriented purchase + subsidy". Meantime, China will set the subsidy policy and minimum purchase price for corn. 

• Feb.: The State Administration of Grain (SAG) issued a letter to collect the list of processing enterprises that are going to participate in the directional selling of overstored grains, which officially opened the gate for the directional selling of corn.
 
Early in Nov. 2015, the MOA issued the Structure Adjustment Plan on Corn Planting Area in Sickle-shape Region (2016-2020), hoping to slow down the irrational increase in corn supply by reducing corn planting area. The planting area is expected to be cut down by over 3.33 million ha (50 million mu) in the sickle-shape region by 2020
 
Notably, the purchase volume of corn for temporary storage hits a record high in 2015/16, being 125.42 million tonnes as of 30 April, 2016. 
 
- Price 
 
Affected by the high-level domestic corn inventory, China's market price of corn has kept falling since H2 2015. The average figure dropped to USD300.14/t in Q1 2016, down by 20.26% YoY. Average market prices in Jan.-March were:
 
• Jan.: USD309.34/t, a YoY fall of 16.84% and a MoM rise of 4.10%
• Feb.: USD303.56/t, a YoY fall of 18.61% and a MoM fall of 1.86%
• March: USD287.53/t, a YoY fall of 25.15% and a MoM fall of 5.20%
 
At the same time, the falling corn price caused declines in average prices of some downstream products in Q1 2016:
 
Corn starch (North China): ex-works price at USD360.92/t, down by 24.58% YoY and 9.42% MoM
Furfural: market price at USD1,047.41/t, down by 23.61% YoY and 11.41% MoM
 
Market price of corn in China, Jan. 2014-May 2016

Source: CCM 
 
- Import & export 
 
Q1 2016 saw abnormal import & export of corn in China. Although the market price kept falling in China, it was still higher than the import price, which led to weakening price advantage in the international market. Therefore, China imported more corn but exported less in Q1. Generally speaking, the first quarter of a year is the busy season for corn import in China and then the import volume will fall back in the second quarter.

However, the import volume in Jan.-Feb. 2016 was only a tenth of that in Jan.-Feb. 2015, while the figure rebounded in March – a YoY rise of 1,037.82% and a MoM rise of 823.78%.
 
According to China Custom, China imported 645,500 tonnes of corn in Q1 2016, down by 47.64% YoY. Notably, the import volume will maintain a low level, due to China's reduction in corn inventory in later period, continuously falling domestic corn price, and narrowing gap between domestic market price and import price.

Imports of corn in China, Jan. 2014-March 2016

Source: China Customs
 
According to CCM's price monitoring, China's market price of corn is USD280.59/t in May 2016. Although the price still maintains a low level, it has shown a slight rebound, mainly because of the tight supply of corn in the market now – most of corn in the market has been stored by the state and the surplus high-quality one has been basically consumed.

On 13 May, the SAG conducted an auction for the directional selling of corn (400,000 tonnes, harvested in 2012) only for alcohol and feed enterprises, which indicates an official start for the directional selling of overstored grains this year. In the near future, all provinces will announce the lists of enterprises that participate in the directional selling in succession.

As the SAG announced to hold auction fairs for overstored corn and corn stored outdoors in the SAG and national grain trading centers of all provinces (districts and cities) each week since 27 May, 2016, it is predicted that a large quantity of overstored corn will be sold in later period.

Coupled with that many provinces have made auctions for corn, the policy-oriented grains will dominate the market. Boosted by the low auction price, the domestic market price of corn will reduce to some extent at that time. CCM will make follow-up reports on the auctions.
 

This article comes from Corn Products China News 1605, CCM