BEIJING (Reuters) - Beijing plans to cut local corn prices for a second year as it pushes to reignite stalled demand from its crisis-hit grain processors and whittle down the world’s biggest corn stockpile, industry sources said.
In its latest move to boost a sector that has struggled with the world’s most expensive domestic corn, the government is preparing to slash state support prices by another 10 percent to 1,800 yuan ($282) per tonne for 2016/17, according to three sources. That would follow previously announced cuts for the crop year that began in October.
Cheaper local prices could sap appetite for imports from processors in the world’s No.2 corn consumer behind the United States, a move that could weigh on world prices and <0#C:> hurt corn exporters from the Americas to Ukraine.Grain processors make products ranging from animal feed to sweeteners and ethanol.
A cut in prices could also stifle demand for corn substitutes such as sorghum, distillers grains (DDGS) and barley, which saw record Chinese imports of over 30 million tonnes in 2014/15.
“The government has to reduce the price, given its massive stocks and as domestic corn prices are still much more expensive than imports,” said Qian Jianjun, an analyst with Beijing Orient Agri-business Consultant Co. Ltd.
Beijing could also offer freight subsidies to animal feed mills in the south of the country that ship corn from the northeastern growing belt, two of the sources said. They did not specify when this could happen.
The finance ministry as well as the National Development and Reform Commission did not respond to requests for comment.
The three sources, who have direct knowledge of the matter, said Beijing may announce the new corn price cuts early next year before planting starts in March.
“Imports of corn and corn substitutes could fall more than we earlier expected, dropping 50 percent or even more from last year,” said an analyst with an official think-tank.
Beijing has been forced to gradually pull away from its controversial policy of supporting farmers through buying corn for national reserves, as stocks are expected to have ballooned to 200 million tonnes by April next year - equivalent to over a year of the country’s consumption.
Higher local prices driven by the stockpiling mean that mills and refiners have lost cash and racked up debt, with as much as 60 percent of China’s processing capacity shut over the past three years, according to refinery sources.
In an earlier step to offer refiners a lifeline, Beijing in September cut state support prices for the first time since 2008. Corn refineries in the northeast have also been offered subsidies for buying local grain.
Those steps helped narrow the gap between domestic and imported grain prices to a difference of around 20 percent, but have not been enough to erode stocks or encourage broad investment from the animal feedstock or sweetener sectors.
Although at least one company has taken advantage of cheaper raw material prices: Global Bio-chem Technology Group Co, Asia’s largest corn refiner, restarted its idled corn sweetener and lysine plants last week, an official told Reuters.
The lysine plant in the northeast province of Jilin will reach full capacity of 500,000 tonnes per year by the end of November, said the official, who declined to be identified as he was not authorized to speak with media. Lysine is an animal feed ingredient.
However, tepid demand for animal feed will stymie efforts to boost many corn processors. Some poultry farmers’ flocks are recovering from bird flu and China’s culling of its hog herds has depleted stocks.
Meng Jinhui, an analyst with COFCO Futures Co. Ltd, said corn demand would not return to the record highs seen in 2012 of 120 million tonnes “any time soon”.
($1 = 6.3782 yuan)
Reporting by Niu Shuping and David Stanway; Editing by Josephine Mason and Joseph Radford
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