WASHINGTON, D.C., U.S. — Liu Xiannan, director of the Economy and Trade Office of the National Development and Reform Commission (NDRC), announced March 28 that the temporary reserve policy in China’s Northeastern provinces and Inner Mongolia will be replaced by a new mechanism of “marketized purchases.” Unspecified new subsidies will be created to help support corn farmers. This surprise announcement came after planting started and leaves growers and traders guessing on what will happen next, the U.S. Department of Agriculture’s (USDA) Foreign Agricultural Services said in an April 8 report.

The Chinese government has now abandoned price support policies for all commodities except wheat and rice. The Chinese government said it will retain and “improve” support price policies for wheat and rice, but these grains face the same challenges as corn. Mounting surpluses, pressure from cheaper imports, and concerns about lagging productivity and environmental deterioration are forcing China to overhaul the agricultural subsidy model that developed over the past decade.

Market year 2016-17 corn production is forecast at 218 million tonnes based on average yields and 3% decline in acreage. The corn planting season has already begun. According to contacts in northeast China, most farmers have already made planting decisions and cannot easily change plans based on the cancellation of the temporary reserve program. Market year 2016-17 corn consumption is forecast at 225 million tonnes, up 7 million tonnes as lower corn prices and subsidies to corn processors boost feed and industrial demand. Market year 2016-17 corn imports are forecast at 1 million tonnes, 1.5 million tonnes lower than market year 2015-16, as falling corn prices will make imports less attractive.

Market year 2016-17 wheat production is forecast to increase slightly to 130.5 million tonnes on slightly higher acreage and average yields as attractive prices encourage production. Wheat total consumption in market year 2016-17 is forecast to decrease to 110.5 million tonnes due to falling feed wheat usage and weak demand for food and industrial use. Market year 2016-17 wheat imports are forecast at 3.2 million tonnes, up 200,000 tonnes from market year 2015-16 on higher demand for premium quality wheat for making high and low gluten flour.

Market year 2016-17 rough rice production is forecast to remain flat at 208.3 million tonnes. Market year 2016-17 rice consumption is forecast at 147.4 million tonnes, down 600,000 tonnes as Chinese consumers are eating more meat and dairy and eating less rice, wheat and other staple grain. Higher rice prices have also hurt industrial and feed demand. Rice imports are forecast to remain stable in market year 2016-17. Domestic rice prices continue to stay far above international prices due to China’s floor price, sustaining demand for imported (and smuggled) rice.

Imports of barley, sorghum and distillers dried grains with solubles (DDGS) for feed increased rapidly after 2012 as a result of high domestic corn prices. This trend is reversing now that corn prices are falling. Market year 2016-17 sorghum and barley imports are forecast to fall to 5 million tonnes and 6 million tonnes respectively as falling corn prices reduces demand for imported feed ingredients. Estimated market year 2015-16 sorghum and barley imports are also lowered to 6 million tonnes and 6.9 million tonnes respectively as traders are already responding to falling corn prices by reducing imports.