China plans wheat, rice sales to tame surging corn prices

BEIJING: China plans to sell rice and wheat from state reserves to animal feed producers who are struggling with high corn prices, which have soared more than 20% in some areas this year amid tightening supplies, three sources familiar with the matter said.

Beijing may offload about 10 million tonnes of rice in the first batch of sales, according to one of the sources who was briefed on the plan.

"The government is doing this to check corn prices," said the source.

The plan to sell stocks from reserves comes as Chinese corn prices hit five-year highs and inventories dwindle following years of government efforts to whittle down a previously massive corn stockpile.

Extensive floods and cool weather across growing belts have also supported prices.

Physical corn prices in Harbin - China's top corn province - hit 2,110 yuan ($301.69) per tonne on Monday, up 23% this year, and highest since September 2015.

Spiking prices have pushed Chinese importers to buy record volumes of US corn, which could also help the government fulfil a pledge under the Phase 1 trade deal with United States.

Under the proposed plan, the first batch of rice would be sold at about 1,000 yuan a tonne, according to two of the sources - well below half the current market price of the grain.

This rice would be sold through state firms directly to feed makers, unlike the rice sold from reserves in regular auctions to the broader market. The state firms are required to hull and shatter it first to make sure it does not enter the food market, according to the sources.

"It is totally fine to use (rice in feed.) The only problem is it might not last as long as corn after it is hulled," said a source with a major feed producer, also briefed on the plan.

"But as long as the cost is low, feed producers would be OK to use it," the source said.

There could be additional sales of rice and wheat, depending on the corn market situation, the sources said.

The sources declined to be identified due to the sensitivity of the matter. China's National Development and Reform Commission, the leading decision maker behind the plan, did not respond to a fax seeking comment.

China keeps a years-old minimum purchase price programme for wheat and rice, and has built up mammoth stockpiles of the grains - more than an entire year's consumption in the country, a top government official said in April.