NEW YORK, Oct. 13, 2016 /PRNewswire/ -- In Aug. 2016, a hearing about anti-dumping and anti-subsidy actions on imported DDGS was held by the MOC. And whether the DDGS produced by the US would be determined as dumped products and how much anti-dumping duty would be levied on them will be announced 1-2 months after. If the result comes out negative for American DDGS, it would be a good opportunity for Chinese homemade DDGS to take over the domestic market.
In response to the agricultural supply-side reform, China has decided to take measures concerning the corn industry field, measures such as canceling the purchase policy of corn for temporary storage, reducing planting areas, setting up subsidy policy and price insurance. "Stability and change" will be key features for the future corn industry.
In H1 2016, sales of leading beverage enterprises declined affected by the stagnant Chinese beverage market. HFCS and citric acid, as important additives in various drinks, experienced declines in demand and prices, mainly affected by people's changing consumption attitudes and the falling price of corn.
Corn deep-processing enterprise Shandong Longlive acquires Internet firms Kuaiyun Technology and Winnerspring Union to construct the "enlarged health + Internet" business.
China Starch forecast a large YoY rise in net profit in H1 2016, mainly thanks to the rising sales volume of its fermented and downstream products. It is known that the sales volume was boosted by the declining corn price.
In H1 2016, Xiwang Foodstuffs's soaring sales volume of small packaging edible oil made great contribution to its financial performance. At present, the company is marketing different kinds of edible oil varieties and marching into healthcare product industry by acquiring an overseas enterprise.
In H1 2016, Fufeng Group's gross profit increased slightly, mainly thanks to the well-performed threonine and premium amino acid businesses. In the coming period, the company plans to break into the cosmetics industry through further developing its high-grade amino acids.
China's soybean meal price dropped in July and remains stable in Aug., mainly affected by the sufficient supply of American soybean, abundant domestic inventories, and the reducing number of pigs in farms. CCM predicts that the domestic market price may slightly rise in the near future because import volume of soybean will decline from Aug. onwards.
In H1 2016, China's export volume of sorbitol rose by 34.47% YoY, mainly affected by the falling export price.
China's corn starch price fell back again in July due to the running out of corn inventory, rainstorm, and increase of corn starch inventory. The price fall has resulted in lower operating rate but a remarkable rise in export volume in H1 2016.
China's supply-side reform in corn industry takes shape
On 30 July, 2016, the Ministry of Agriculture of the People's Republic of China (MOA) held a national meeting about agricultural structure adjustment in Jilin Province in order to talk about and study on advancing the agricultural supply-side reform. "The supply-side reform in agriculture wants to take the corn industry as a focus to adjust the structure of crop farming. By 2020, corn planting areas shall be reduced by 3.33 million ha (50 million mu) and stabilize at 33.33 million ha (500 million mu)," said Han Changbin, Vice Minister of the MOA, during the meeting. It's worth noting that the planting area reduction goal is in line with the one mentioned in previous related document.
The supply-side reform is a national strategy that have been put forward in Nov. 2015 with the aim of changing the current demand-oriented economic growth pattern and improve the situation of overcapacity as well as the lack of high quality products in the industry. China hopes to further the industry structure adjustment in order to improve allocation of production factors, to expand the effective supply through the reform and product quality improvement. Currently, the supply-side reform covers most of industries in China, and agriculture represents one of its main focuses.
Supply-side reform is urgent for China's corn industry
China is a big corn-producing and consuming country, its corn industry, however, is now suffering from "three high" problems – high price, high inventory and high import volume. With corn being one of three major food crops in China which involves a large number of downstream products, these problems also pose negative impact on downstream industries. Therefore, the supply-side reform for the corn industry is urgent.
De-stocking is the most urgent measures in solving the "three high" problems. The large corn inventories which once hit a record high of 250+ million tonnes and the more than USD9.81 billion (RMB65 billion) of storage charge per year not only push up the government's financial expenses, but also lower the domestic market price of corn. As a result, reducing corn planting areas becomes an important link in the supply-side reform and cancelling the purchase policy of corn for temporary storage is also necessary. The policy not only ensures the grain safety of China by expanding planting areas, but also guarantees farmers' interests, despite that it ended up causing the "three high" problems in recent years.
Frequent reforms in China's corn industry
In recent years, the Chinese government has carried out many measures in order to respond to the supply-side reform in corn industry, including reducing planting areas, canceling the purchase policy of corn for temporary storage, etc.
The purchase policy has been canceled and changed into a new mechanism "market-oriented purchase + subsidy" – corn is purchased by market players themselves and growers are subsidized. The previous purchase policy mainly targeted four major corn producing regions, namely Inner Mongolia Autonomous Region, Jilin, Liaoning and Heilongjiang provinces.
On 5 Aug., 2016, the People's Government of Heilongjiang issued the 2016 Implementation Program of Subsidy for Corn Growers in Heilongjiang Province (the Program) to subsidize actual growers including farmers, farmer professional cooperatives, state-owned enterprises and institutions, etc. while the provincial subsidy standard will be confirmed after the Heilongjiang Bureau of Statistics and Heilongjiang Provincial Commission of Rural Affairs verifies related factors like planting areas. CCM predicted that it may take some time for the details like the subsidy amount to be disclosed.
According to the Program, if growers plant corn in the arable lands that is supposed to be restored back to nature, they will not enjoy any subsidy. In other words, certain areas corn has been planted in won't get subsidized this year. However, since this involves a large sum of money and farmers' interests, deciding how to divide subsidy areas needs to take into account all factors.
What's more, a large sum of subsidy may lead to the further reduction of corn price. On 9 Aug., USD4.53 billion (RMB30 billion) was appropriated to subsidize corn growers, of which USD1 billion (RMB6.63 billion) in Inner Mongolia, USD690.89 million (RMB4.58 billion) in Liaoning, USD1.10 billion (RMB7.26 billion) in Jilin and USD1.75 billion (RMB11.57 billion) in Heilongjiang. After calculation, the subsidy is estimated to reach about USD30.17/t-USD45.26/t (RMB200/t-RMB300/t). Since some areas may not be included in the subsidy area, it is predicted that the subsidy amount will be larger, and the larger the subsidy amount is, the more interests farmers will get, which will further pull down corn prices.
Additionally to all of this, China is piloting the "insurance + futures" mechanism in Jilin in order to guarantee farmers' interests. On 3 Aug., 2016, this mechanism also progressed in Tieling City, Liaoning, in which seven large agricultural cooperatives signed insurance policy with China United Insurance Holding Company, Liaoning Branch:
Total premium: USD344,871 (RMB2.29 million), 70% of which is subsidized by the MOA while the remaining 30% is paid by farmers
Contracted price of corn: USD241.41/t (RMB1,600/t)
Notably, if the average closing price of corn futures in Dalian Commodity Exchange during the contracted period is lower than the contracted price, the insurance company shall compensate the price difference.
To sum it up, China is frequently taking actions to answer the supply-side reform in the corn industry. "Stability and change" will be the key subject of China's corn industry in the future.
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