China to maintain corn stockpiling for another year

China, the world's No.2 consumer of corn, will maintain its controversial policy of stockpiling the grain for another year before it fully frees up domestic prices, industry analysts said.

The policy, designed to boost rural incomes, had been expected to be scrapped by as early as this year. It has lifted domestic prices around 50 percent higher than their global counterparts, forcing animal feed mills to replace the use of domestic corn with imports or cheaper substitutes.

"Domestic corn prices will eventually be decided by market forces and full market prices, which link to international prices, and this could happen as early as 2017," said Li Qiang, chief analyst with Shanghai JC Intelligence Co Ltd (JCI).

The National Development and Reform Commission (NDRC) and agriculture ministry said last month that they would let the market play a "decisive role" in domestic corn prices, signaling changes to the current government stockpile scheme.

Analysts said that while stockpiling would continue in the marketing year that begins in October, the amount purchased would drop and that the state support price for corn would also fall, as the government looks to balance the interests of farmers and downstream processors.

Analysts said the finance ministry and the NDRC believe the state support price should drop by as much as 20 percent from last year's level to 1,800 yuan ($296.75) per tonne. Those bodies did not immediately respond to requests for comment.

However, they said such a large reduction is opposed by the Ministry of Agriculture as it could pose problems for major corn producing regions in the northeast, responsible for about 40 percent of China's output of the grain. The ministry did not immediately comment.

"The market is widely expecting a price cut (for the new crop), though the range differs," said Meng Jinhui, an analyst at COFCO Futures Co Ltd.

Analysts said the price cuts would help make Chinese corn more competitive and help revive loss-making downstream industries.

They said the government was also planning to reduce purchase volumes for state reserves by imposing strict quality requirements.

The price cuts could reduce imports of corn and corn substitutes by more than 30 percent, said JCI's Li. He estimated imports next year would fall to 20 million tonnes, from 30 million this year.

China's imports of corn and corn substitutes, including sorghum, distillers grains (DDGS) and barley, whose imports are not subject to quotas, have hit records in 2015/16, driven by cheap overseas prices.

Price cut expectations have weighed on the January 2016 Dalian futures contract which was trading at about 2,000 yuan per tonne, lower than current cash price of 2,350 yuan per tonne in the country's largest grain port in the north.