WASHINGTON, D.C., U.S. — China’s huge grain stocks continue to impose severe pressures on China’s production and trade policies, the U.S. Department of Agriculture’s (USDA) Foreign Agricultural Service (FAS) said in a Feb. 5 report. While officially recognizing the need to reduce the high guaranteed producer prices for food grains (especially corn), the government has not articulated when or how it will do this.

As a result, China is once again expected to produce record corn, wheat and rice crops in 2016. This production will, in turn, add to already bulging stocks, currently estimated at approximately 250 million tonnes, or roughly half of global reserves. It is also likely to once again lead to artificial suppression of imports, and artificially high prices for meat and dairy. At the same time, increasingly vocal and public calls for reform, including in a major policy document, send a strong signal that the current price subsidy system is unsustainable. The Number One Document called for reform of corn subsidies to allow corn prices to reflect supply and demand. Support prices set far above international prices are helping to sustain record grain production, suppress demand and leading to the buildup of massive reserves.

On Jan. 28, the Chinese Communist Party released its 2016 Number One Document on agricultural policy. State owned newspapers issued editorials linking reform of grain subsidies and prices with President Xi Jinping’s supply-side reform initiative. In fact, China took the surprise step of reducing the guaranteed corn price by 10% as the 2015 harvest concluded. This suggests that reform of the grain sector will be a high priority for the government this year. The government continues to prioritize self-sufficiency in wheat and rice, and subsidies for these two crops are expected to remain high.

On Jan. 8, Ren Zhengxiao, administrator of China’s State Administration of Grain, said that corn accounts for 42% of China’s grain reserves. Based on the range of estimates of corn stocks, this ratio suggests China has anywhere between 250 million tonnes to over 400 million tonnes of grain reserves. Both Ren’s statement and the USDA estimates highlight that China is not just facing high corn stocks; it also holds massive reserves of wheat and, to a lesser degree, rice.

Forecast marketing year 2015-16 corn production is raised slightly to a record 225 million tonnes as acreage continues to expand despite lower corn prices. Forecast market year 2015-16 rough rice production is raised slightly to a record 209 million tonnes, also on higher acreage. Forecast market year 2015-16 wheat production is unchanged at a record 130.19 million tonnes. Support prices set far above international prices are helping to sustain record grain production, suppress demand, and to the buildup of massive, expensive reserves. It also discourages crop rotation and has led to artificially high use of chemical inputs.

Market year 2015-16 forecast wheat consumption is revised down 4 million tonnes to 114 million tonnes due to lower wheat feed use and a continued gradual decline in industrial use. High wheat prices and falling corn prices have priced out wheat as a feed ingredient. Forecast market year 2015-16 rice consumption is lowered 2.4 million tonnes to 147.6 million tonnes due to shifting consumer preferences, the economic slowdown, and lower feed use, the report said. Forecast market year 2015-16 corn consumption is unchanged at 214 million tonnes. Falling corn prices and subsidies for corn processors have helped boost demand, although not enough to keep up with growing supply.

Market year 2015-16 forecasts ending stocks for corn, wheat and rice will reach a massive combined 258 million tonnes. Forecast market year 2015-16 wheat stocks are raised 6.2 million tonnes to 93.5 million tonnes on weakening demand. Forecast market year 2015-16 corn ending stocks are raised 420,000 tonnes to 113.9 million tonnes due to slightly higher production. Forecast market year 2015-16 ending stocks are revised up 2.9 million tonnes to 50.6 million tonnes due to stagnating consumption. Management of excess stocks is becoming an urgent issue for government officials.