What does the end f China’s Corn Stockpiling program mean for Grain Markets?

Oilseed & Grain Trade

What Does the End of China’s Corn Stockpiling Program Mean for Grain Markets?

April 4, 2016

by Lynda Kiernan

After accumulating approximately 250 million tons, China announced that it will be ending its state-sponsored corn stockpiling program this year, according to the official Xinhua News Agency reports Bloomberg. China began buying domestic grain at above market prices in 2008 in order to protect the income of its farmers. This practice led to more than a 35% increase in production making China the second biggest corn producer in the world after the U.S., and swelling the country’s stockpiled inventory to more corn than the country could use in a year.

In place of the stockpiling program, beginning with the 2016/17 season, Beijing will direct buyers to acquire corn at market prices, will provide farmers with offers of credit, will push for changes in crop production, and will take measures to reduce the current massive domestic inventory.

As a result of the influx of domestic corn into its market and the correction of corn prices, Chinese buyers are expected to reduce their purchases of grain substitutes including barley, sorghum, and distiller’s dried grains DDGs from global markets. Reuters reports that Chinese imports of sorghum and DDGs from the U.S. have already decreased from their record high volumes reached last year.

"The good things we saw a couple years ago are over," Mike O’Dea, a U.S. trader for INTL FCStone Inc. told Reuters.

However, the rapid growth of Chinese demand and the likely questionable condition of the corn in reserve may support continued import volumes from China, and once the reserves are spent, demand for grain may strongly rebound.

"The quality of the corn is very uncertain. A lot of it is poor quality and in fact has mould [sic] problems, which will make it unusable as livestock feed or for most kinds of industrial use as well," United States Department of Agriculture Economic Research Service senior economist Fred Gale told ABC.

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