Change in China's Corn Policy Could Hurt U.S. Farmers

April 5, 2016 05:00 AM
Change in China's Corn Policy Could Hurt U.S. Farmers

China’s plans to end its corn stockpiling program this year could mean bad news for American farmers hoping to export their surplus crops.

Facing increasing reserves, China, which is the world’s second-largest corn producer, announced on March 29 that it would replace its stockpiling program with subsidies for Chinese corn growers. The move was aimed at stemming the tide of cheaper imports that were filling the gap between higher local prices and lower international prices.

For American farmers, China’s move means “direct competition in world competition for selling corn,” says Andy Shissler, partner at S&W Trading in Downers Grove, Ill.

“The price (of corn) stays down. It’s harder without a weather issue,” he says. “Weather will cause much more volatility in Chinese and world prices.”

Analysts quoted by Reuters suggest that China is likely to sell more than 40 million tons of corn from stockpiles this year.

China’s plan also will make it harder to know exactly where China is sending its corn in the world, according to Shissler.

“This opens the market for free trade without quotas.  If corn pencils into the south of China, it moves to the south from whatever country that is priced the lowest, including China,” he says. “You could see corn shipped out of the U.S. marked for China, but go into South Korea or even Japan.  The corn, and small crop, trade is going to get a whole lot grayer.”

Even for China itself, the change in policy is not without risk, according to market observers. Such a move could make China vulnerable to financial losses if falling prices devalue the country’s large stockpiles of about 250 million tons—which represent more than half of the world’s corn supplies.

China began subsidizing corn production in 2008, paying above-market prices to protect farm incomes. That increased production by more than 35% and boosted local prices by 30% to 50% above global market prices.

China already has abolished stockpiling in cotton, soybeans and rapeseed and is considering doing the same for wheat and rice.

How concerned are you about China’s corn policy affecting corn prices for U.S. farmers? Let us know in the comments. 

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