China confirmed they would be scrapping their corn support price scheme last week in an effort to reduce the flow of feed grain imports and encourage increased domestic consumption.
For nearly a decade, China has been raising its corn support prices to ensure food security and indirectly subsidise farmers. But the policy of steadily rising corn floor price has come at a high cost.
Ultimately it elevated the domestic floor price to the point where it became the highest corn price in the world, encouraging Chinese farmers to grow more and more corn but also attracting massive feed grain imports.
Although Chinese grain stocks are considered a state secret, private analysts estimate they are likely to be upwards of 150 million tonnes.
This would dwarf the current US corn stocks of just under 50 million tonnes, which are the largest in a decade.
But despite these massive domestic corn stocks, the high Chinese corn prices have been a beacon for global feed grain imports.
In the past two seasons, China has accounted for nearly half of total global sorghum and barley imports. Altogether, China imported around 30 million tonnes of sorghum, barley, dried distillers grain and corn in 2014/15.
Going forward, China will allow their corn prices to be set by market forces, and introduce direct farmer subsidies.
The immediate impact for Australia will be the effect it has on sorghum imports.
China has been Australia’s major sorghum export destination since 2013/14 but demand appears to have slowed considerably this year.
Larger than expected US corn plantings were another blow for world feed grain and local sorghum prices last week.
US farmers plan to increase corn plantings by 6 million acres as they swing away from wheat into more profitable crops, according to their first official planting survey released last week. Corn prices fell sharply on the news.
The silver lining was that Chicago wheat prices jumped after the USDA said US farmers would plant their smallest wheat area since 1970.
Darling Downs sorghum bids drifted by $2 to $210 delivered with traders still struggling to shift nearby supplies amid the lack of export interest.
A further 2 per cent rally in the Australian dollar came as more bad news for exporters.
Stockfeed wheat prices into the Downs were close to unchanged despite a three per cent jump in benchmark US futures last week, with the stronger dollar largely snuffing out any benefit.
