July 2, 2014 / 12:26 AM / 4 years ago

As storage overflows, China expected to scrap corn stockpiling

BEIJING (Reuters) - 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 United States 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 programers 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 Ltd (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 added.

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 oveflowing storage facilities in key northeastern growing areas.

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.

Beijing 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 authorised to speak with media.

The government holds nearly 100 million tonnes of corn - equivalent to about half annual domestic consumption - with purchases in the last two years costing more than 221 billion yuan ($36 billion). It could add 50 million tonnes 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 tonnes is lying in temporary open-air facilities.

In a bid to partially alleviate the problem, the government has shifted 2 million tonnes of corn stored in the northeast to big consuming regions in the south, which have space to take some grain, industry sources said. It hopes to move other batches in future.

SUBSTITUTE

The end of the stockpiling system will deal another blow to U.S. exporters, already pressured as China turns away cargoes containing Syngenta’s MIR162 corn, a GMO strain as yet unapproved by Beijing.

It has rejected around 1.25 million tonnes of U.S. corn since November, the country’s quality watchdog said in a report on Monday.

Total shipments from the United States dropped 42 percent from the year before in 2013 to 2.97 million tonnes.

Beijing is also clamping down on imports of U.S. commodities that can be used as alternatives to corn in animal feed.

It has stopped issuing import permits for U.S. distillers grains following the detection of MIR162 in cargoes, while trade sources said Beijing may move to control imports of sorghum, even though the commodity is GMO-free.

Editing by Joseph Radford

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