China to End Corn Stockpiling Scheme

China plans to scrap its corn stockpiling scheme and allow markets to set prices for the grain, pushing to boost efficiency on its farms and to narrow a gap between local and international prices that has sparked a surge of cheaper imports.

The government will instead subsidize corn growers and encourage commercial firms to buy grain from farmers at market prices, the State Administration of Grain said in a statement on Tuesday.

The new policy, which marks the biggest reform in China’s grains sector for a decade, is aimed at improving quality and efficiency in its agricultural sector as part of the country’s “supply-side reform”.

But it could prove costly for Beijing, potentially leaving it with huge financial losses as falling prices devalue massive stockpiles that hold over half the world’s corn supplies.

And as domestic prices start to shift in line with international markets, Chinese demand for imports of corn and corn substitutes such as sorghum, feed-grade barley and distillers’ grains is expected to tank, hitting major suppliers such as the United States and Australia.

“We hope the new reform would let the market play more of a role in the formation of prices,” Liu Xiaonan, a deputy director with the National Development and Reform Commission (NDRC), was quoted as saying in the statement.

via Reuters

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, he established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza