China cuts corn support prices to reshape feed market

by World Grain Staff
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WASHINGTON, D.C., U.S. — The massive surge in China’s imports of cheaper alternative feed ingredients has significantly impacted feed demand for corn in recent years, the U.S. Department of Agriculture (USDA) Foreign Agricultural Service (FAS) reported on Nov. 6. The FAS has therefore sharply reduced corn “feed and residual” use for market year 2013-14 through 2015-16. Combined with another record corn crop, FAS forecasts market 2015-16 ending stocks will reach 117 million tonnes. China’s recent 10% cut in the corn support price should spur domestic corn consumption and reduce demand for imported alternative feed ingredients, such as sorghum. Market year 2015-16 corn and wheat production are still forecast at a record 225 million tonnes and 130 million tonnes, respectively. Even after the price cut, domestic corn, wheat and rice prices remain far above international prices.

Corn feed and residual is revised lower for market year 2013-14, market year 2014-15, and market year 2015-16 in recognition of the increase of  imported sorghum, barley, and distillers dried grains with solubles (DDGS). Combined imports of these three commodities reached 25.6 million tonnes in market year 2014-15 as feed mills searched for alternatives to high priced domestic corn. Interviews with experts across the country reveal that this search was more successful than previously reported. FAS has therefore raised the market year 2015-16 forecast for ending stocks by over 26 million tonnes to 117 million tonnes. This estimate is closer to industry estimates, some of which are as high as 170 million tonnes.

In response to the increasingly untenable stock situation, China announced a 10% cut in the floor price for corn in September. This is the first time the government has cut the floor price for corn since it was put in place in 2008. The government is also becoming stricter on quality requirements for state purchases, and farmers who can’t meet these standards have to sell their corn on the market at a discount. The cut in prices has left farmers struggling to pay high land rents that were set based on the old floor price. China, faced with increasingly massive corn stocks and rising imports, felt compelled to act despite the impact on farmers. The lower corn prices should help corn feed use recover in market year 2015-16 and reduce imports of sorghum and other alternative feed ingredients. As a result, forecast market year 2015-16 sorghum imports are lowered 4 million tonnes to 7 million tonnes.

Despite the reduced support price, corn remains an attractive option for most growers when compared to alternative crops. Corn, wheat, and rice acreage are all expected to stay relatively stable this planting season. Forecast market year 2015-16 corn and wheat production are unchanged at 225 million tonnes and 130 million tonnes, respectively. Forecast market year 2015-16 rice production is lowered slightly to 144.2 million tonnes on slightly worse expected yields due to weather patterns.

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