China plans to bring forward annual corn sales despite a saturated domestic market and some warehouses may be forced to offload inferior corn in an effort to clear a mounting stockpile, said industry sources. There is no official figure on how much stock will be dumped on the market, possibly as early as December, but the release will likely accelerate a year-long rout in prices and crimp domestic appetite for grain, reinforcing concerns among major exporters like the United States.
China Grain Reserves Corp (Sinograin) may start releasing old stocks before April, four months earlier than usual, several industry sources said. Sinograin declined to comment. This year the government only managed to sell 4.06 million tonnes. China's corn stockpile is expected to hit 200 million tonnes by April, equivalent to one year of China's consumption.
"Government authorities are planning sales of old corn stocks at a lower-than market price to some selected companies, but timing, volume and prices have yet finalised," said one official source who declined to be identified. Beijing may not release a large volume of state stock before its current stockpile scheme ends in April, but it is likely to sell a volume of below one million tonnes of old stock to ethanol and alcohol makers, said the source.
The source said the price may be higher than 1,500 yuan ($233.47) per tonne talked in the market. Beijing is currently buying corn for state reserves in the northeast at a price of 2,000 yuan a tonne, aiming to boost rural income. The support price is more than 20 percent higher than global prices. Some commercial warehouses that store on behalf of Sinograin will be forced to offload stocks as government grain authorities step up checks and are cracking down on purchases of inferior corn for state reserves, two other sources said.
"Some warehouses have failed to comply but boosted buying, at a pace too fast that has aroused the government's attention," said one source familiar with the plan. Some warehouses in Jilin and Heilongjiang have been ordered to stop stockpiling, the move could force these warehouses to dump corn at domestic market as early as this month, they said. "This crackdown will definitely be a big blow to the market," said one source.
Beijing has had to consider new measures to sell down its stocks amid fears that some of the older grain is no longer fit for human consumption, the official People's Daily said on Monday. These include sales restricted to designated sectors such as alcohol, ethanol and feed, it said. The reserve typically auctions off a certain tonnage of corn each year after the stockpile scheme ends. "They would (normally) wait until May 1 to start sales. But if you've stored for so long, and stocked so much corn, then what do you do?," said Li Qiang, chief analyst Shanghai JCI Intelligence Co Ltd.