CCM: China expected to re-implement subsidy policy on transportation of corn

  
In Dec. 2015, corn is unsalable in many places of China due to the new peak of corn output. Meanwhile, the inventory of temporarily-stored corn is also very high in China. Therefore, the discuss on whether Chinese government should re-implement the subsidy policy on corn transportation to consume the inventory and to boost the activity of sending grains from the North to the South becomes a hotspot nowadays. Data from the China National Grain & Oil Information Center (CNGOIA) show that the corn output will hit a record high in 2014/2015, being 219 million tonnes, up 2.41% year on year. As of 1 Dec., China's corn inventory has reached 180 million tonnes.

  
The subsidy policy on corn transportation means that the government will provide a one-time subsidy for those feed enterprises in southern feed consuming provinces that transport corn from Heilongjiang Province, Jilin Province, Liaoning Province and Inner Mongolia Autonomous Region for sales, processing or storing.

  
Since China has implemented temporary purchase and storage policy for 8 years, Chinese government has offered southern feed enterprises twice subsidies on corn transportation.

  
In 2009/2010, the subsidy was USD10.95/t (RMB70/t). At that time, China's corn deep-processing and feed industries embraced rapid development. Meantime, Northeast China suffered from droughts, which reduced the corn output. Sourced from the CNGOIC, the corn output was 164 million tonnes, down 7%-9% compared to the last year. The market presented a situation where supply fell short of demand. In order to promote the fair competition of feed enterprises in the South and the North, Chinese government carried out subsidy policy.

  
In 2013/2014, the subsidy was USD21.90/t (RMB140/t). Affected by the serious bird flu took place in China in April 2013, the poultry farming industry was in downturn, suppressing the demand for downstream feed products. At that time, the inventory of temporarily-stored corn was about 75 million tonnes. To stimulate the operating rate of enterprises, Chinese government formulated the subsidy policy.

   According to analyst CCM, it is very likely for China to implement subsidy policy for corn transportation again in the future.

  
Firstly, regarding the current inventory, the corn inventory has reached 180 million tonnes in China, as of 1 Dec. The figure is 2.4 times that in 2013/2014. The government faces unprecedented pressure on inventory.

  
Secondly, Chinese government is under the pressure of public opinion of policy fault since corn is found unsalable in many places. How to stimulate the production of downstream enterprises quickly and effectively to consume the corn becomes the urgent affair.

  
Thirdly, since Jilin Province (Northeast China) enjoys the processing subsidy of USD54.71/t (RMB350/t), it is of obvious cost advantage. In order to ensure the fair competition, it is reasonable to subsidize southern enterprise on transporting corn.

  
In the cast of the supply, southern feed enterprises should have been inclined to purchase northeast corn because Northeast China has large corn planting areas for them to select. However, the long transport distance results in high transportation cost. Besides, the northern corn price was significantly declined in Oct. 2015. At the end of Oct., the purchase price of northern corn was USD257.92/t (RMB1,650/t), down 6.89% compared to the early of Oct. And the average price of northeast corn was USD289.18/t (RMB1,850/t) in Oct., which was obviously higher than that of northern corn. Thus feed enterprises are more willing to purchase northern corn (For more details, please refer to the Northern corn squeezing northeast corn market in China in the Corn Products China News 1510).

  
Currently, it is generally predicted that the transportation subsidy would be about USD31.26/t (RMB200/t) in 2015. If the subsidy policy is implemented, it can reduce the purchase cost of southern feed enterprises and will change the supply pattern of corn, offering northeast corn more obvious cost advantage.

  Comparison of cost advantages of Northeast corn and Northern corn after implementation of transport subsidy

            
Note: The transportation cost is calculated based on shipping.
Source: CCM

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  CCM is the leading market intelligence provider for China's agriculture, chemicals, food & ingredients and life science markets. Founded in 2001, CCM offers a range of data and content solutions, from price and trade data to industry newsletters and customized market research reports. Our clients include Monsanto, DuPont, Shell, Bayer, and Syngenta. CCM is a brand of Kcomber Inc. More about CCM, please visit www.cnchemicals.com.