China to Cut Price Paid for State Corn Reserves by 10% for 2015/16

Reuters reports that industry and government sources state that China will cut the price it pays for state reserved corn by as much as 10% for the 2015/2016 marketing year.

In order to support rural incomes, China has been buying domestic corn at prices higher than global markets, but higher domestic corn prices have driven processors to import cheaper grain substitutes, such as sorghum and barley, making it challenging for the country to sell down its huge corn reserve estimated at 150 million tons.

The cut, which is awaiting approval from the State Council, would bring prices to approximately 2,000 yuan (US$314) per ton. Even though this would still be about twice the international rate, it represents the first time Beijing has initiated such a move since 2008, which would put pressure on prices of imported substitute grains.

Recent uncertainty over the future of Chinese corn prices and an expected decrease in the volume of domestic corn China buys for its reserves this year due to higher quality standards, has already pressured U.S. sorghum prices down to $220 per ton from $270 per ton, a trading manager with an international trading house told Reuters.

"Less purchases by the government will leave more supplies in the market and if the downstream industry is not building stocks, could trigger domestic corn prices to fall further below the support price. Everybody is bearish on domestic corn," added the trading manager.