Chinese corn futures on the Dalian Commodity Exchange fell for a second day on Thursday amid rumours that Beijing will release grain from its vast state reserve earlier than scheduled and at lower-than-expected prices. Talk that the government could start its annual sales in April, a month earlier than usual, led to a big selloff in the previous session, sending prices down 1.4 percent in its biggest one-day drop since December, traders said.
The slide continued on Thursday, falling 0.83 percent to 1,670 yuan ($242.36) per tonne by market close. "There's no official confirmation, but it's enough to be bearish on the market. Long holders are liquidating their positions," said a China-based grains trader who declined to be identified as he is not allowed to talk to media.
Talk was also circulating of low-ball prices, as low as 1,100 yuan per tonne for corn from the 2012 crop, said the trader and an analyst. That would represent a 32 percent discount on the May contract and would be a big cut from last year's average prices paid at state auctions above 1,500 yuan per tonne. "1,100 yuan is really too low," said Fan Jingya, analyst with Cofco Futures. In 2016, the base price for corn reserves auctions in major corn growing province Heilongjiang was 1,200 yuan.
The government may offer a hefty discount if the grain is very old, Fan said. The National Development and Reform Commission (NDRC), which sets policy on grain reserves, did not immediately respond to a request for comment. The speculation comes after Beijing took steps to prop up price in the world's second-largest consumer of the grain after abandoning a years-long support programme for farmers last year.
Beijing has about 230 million tonnes of corn in its state reserves, equal to about a year of demand. It typically sells off stock over the summer months, halting the auctions before new crop corn reaches the market. Heilongjiang has the biggest surplus of corn among all provinces, with large output and relatively few feedmakers and industrial users. Much of the reserves is too old for human consumption and could be sold to designated buyers in processing sectors such as ethanol makers, said analysts.
The NDRC said in a statement last week that it wanted to "continue to steadily digest corn stocks" and would arrange for sales to run from May until the new corn crop from the north-east reaches the market. It also said that selling prices would not pressure the market while the timing would be reasonable, encouraging steady operation of the market.