China expected to buy less corn for stockpiles, encourage processors to use more

China could buy about 50 percent less corn for state stockpiles in the 2015/16 season than the previous year as local governments offer subsidies to encourage processors to use more domestic grain, industry analysts said.

Increased local purchases by Chinese processors could dent appetite for corn imports, pressuring global prices.

Beijing will buy 40-50 million tonnes of corn for state stocks during a six-month purchasing period that starts next month, compared with 83 million in 2014/15, the analysts said.

But those purchases will still likely push the country's total corn stockpile to about 200 million tonnes - around 20 million tonnes more than expected annual consumption.

China, the world's No.2 consumer of corn, is maintaining its controversial policy of stockpiling the grain for another year before it is expected to move to fully frees up domestic prices.

"The government purchase volume will be lower. More and more local governments will offer subsidies to corn processors, which will increase use of domestic corn," said an analyst with an official think-tank.

Jilin province, the country's No. 2 corn producer, has offered subsidies to big processors of 250 yuan ($39.38) per tonne for buying local new corn and 350 yuan per tonne for purchasing from state reserves from October to December, industry sources said.

Heilongjiang and Inner Mongolia may soon offer a similar subsidy to encourage use of corn and help loss-making processors which make products like starch, ethanol and corn sweeteners, the sources said.

China is expected to harvest 6-percent more corn for 2015/16 at a record 228 million tonnes, according to forecasts by the China National Grain and Oils Information Center (CNGOIC).

"The purchase volume (for state stockpiles) would be at least 40 million tonnes. Most farmers still prefer selling corn to state granaries due to the better government price," said Feng Lichen, chief analyst with industry portalĀ

The government has been paying 2,000 yuan per tonne of grain in the northeast, the country's corn belt. That is about 10-percent lower than 2014/15.

The expected bumper harvest coupled with weak demand have already pressured physical corn prices in the area below the state stockpiling price.