How China can make use of its huge corn inventory 04-11-2017

China is facing a massive oversupply of low-quality corn, due to the corn purchase strategy, which was cancelled in 2016. Authorities are actively looking for new markets and demand for corn, to process the inventory in a profitable way. Some of the new downstream markets include fuel ethanol and corn sugar.

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After the withdraw from the corn stockpile policy in China 2016, the country is suffering under large inventory without an adequate usage of the mostly low-quality corn. Not suitable as animal feed, the largest agricultural nation has to find other ways of getting rid of the huge stockpile, which has pushed the price in China downwards for the last years.

According to CCM, China’s government states, that the best way to reduce corn stockpile without getting in conflict with existing industries is by creating new demand for corn. The market of corn starch and MSG is already saturated, which disqualifies this area for increasing corn consumption This is why many departments are increasing their efforts to search for more opportunities in corn consumption and finding downstream markets.

Another measurement is to cut down the planting area of corn, to reduce the supply and let the existing inventory get consumed.

The following three points are indicating different ways of creating more demand and reduce corn oversupply in China.

First of all, the biofuel industry in China is one of the most promising downstream markets for corn. Corn of lower quality can be processed into fuel ethanol, which is one of the main biofuel products currently. According to CCM, automobile fuel, which contains 10% of corn ethanol, is witnessing increasing promotion and demand in the northern regions of China.

One indicator of this new trend is China’s textile and clothing manufacturer Shiqi Group is going to create a gigantic plant for a yearly production of 300,000 tonnes of fuel ethanol in June 2017. The project is supported and partly invested by the government of Kailu County and Inner Mongolia and will cost more than USD175 million. The enterprise takes advantage of the short distance to China’s main corn planting area in Inner Mongolia and states a huge confidence in China’s fuel ethanol market.


Related to the efforts in reducing the gigantic corn storage in China, the ethanol industry is enjoying some preferential benefits from the government. The first policy in this direction was implemented in August 2016 with a reduced export tax rebate rate of ethanol and other corn products to 13%, according to CCM. Later the year on November, several provinces in China, which are the main corn planting areas, have started giving subsidies for corn deep processing productions. On December, as part of the new Catalogue of Industries for Foreign Investment, those investments have been deregulated, especially for the corn deep processing and fuel ethanol industries.


Another possible downstream market is the xylitol production. This corn sugar is not popular in China at the moment, which would need a lot of promoting and marketing the product to increase awareness and convince customers. Furthermore, the sweetener is mostly suitable for people with high blood sugar in general.


Finally, authorities are recommending the production of corn starch films, usable in modernised greenhouses. Corn starch films are an ecological alternative to plastic films, which are used widely at present. In addition, the processing of corn starch into some starch granulate also increases the storage life, which benefits the purpose even more.


While the responsible authorities are searching for new demand, companies have in mind, that soon after the inventory of corn is used up, the production is likely to decrease or stop completely again. Hence, investments in long-term projects are very unlikely. Local governments are asking experts in science and technology for opinions to find proper and reasonable solutions for China’s corn inventory problem.


Corn purchase policy

In the year 2016, China’s government decided to cancel its purchase policy of corn for temporary storage and established a subsidy system for corn producers in China. This followed the principle of letting the market determine prices and delinking subsidies from prices. This, to some extent, relieved the problems of continuously rising corn prices, stockpiles, subsidies and losses in China. 


Currently, corn stockpiles for temporary storage still surpass 230 million tonnes in China. The state will take grain safety and rulemaking into consideration when it promotes new channels to reduce corn stockpiles. According to CCM, in the future, will be a series of policies issued to support corn stockpile reduction by multiple ways. 


According to CCM’s price monitoring, the price of corn is falling since the second half of 2015. When the Chinese government announced the end of its corn storage and subsidy policy, the corn price dropped even faster. As a result, In the middle of February 2017, China’s corn price witnessed a year on year decrease by 28.7%


About CCM

CCM is the leading market intelligence provider for China’s agriculture, chemicals, food & ingredients and life science markets.


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