Is the price reduction of temporary reserves beneficial to the corn market?

In the recent corn market, rumors that the purchase price of temporary reserves will be significantly reduced this year have been raging, and the rumors have been reduced from 200 yuan/ton in the early stage to 400 yuan/ton in the near future. The market’s attitude towards the sharp reduction in the price of temporary reserves is mixed. Basically, everyone believes that after the sharp reduction in the purchase price of temporary reserves, apart from hurting farmers, it will be beneficial to the entire corn market and even the country. Is this really the case? ?

Country: The invisible depreciation of temporary storage inventory. At present, the domestic temporary storage corn inventory is about 150 million tons. If the domestic corn market price drops by 200-400 yuan/ton, the value of stocked corn will invisibly drop by 30-60 billion yuan. With such a large inventory level, the country has an urgent need for destocking. In accordance with the previous principle that the national corn auction sales have always maintained a smooth price, the current starting price of the corn auctioned by the state is at least the cost price of the temporary storage corn. This year's temporary reserve auction transaction rate has always been low, which is also due to the fact that the starting price is higher than the corn spot price. At present, the arrival cost of auction corn is more than 2500 yuan/ton, which is 100 yuan/ton higher than the spot price. If the temporary storage purchase price drops by 200-400 yuan/ton, the spot market will fall even more. How can the country effectively consume temporary storage inventory? The only way is to increase subsidies for participating companies to attract companies to participate in the auction. The subsidy amount must reach at least 500 yuan/ton to have a price advantage. In this way, the country needs 5 billion for every 10 million tons of corn out of the warehouse. The national financial pressure has not been reduced for the cost of yuan.

Farmers: The enthusiasm for growing grain will be frustrated. This year’s National Document No. 1 clearly stated that the temporary purchase and storage policy for important agricultural products will continue to be improved. The signal to farmers and the market is to continue to carry out temporary corn storage, purchase and storage, and no signal is given to lower the purchase. price. Farmers choose to plant corn when they believe that there are policy support and stable planting income, and the corn planting area this year is still increasing steadily. If the price falls sharply due to a substantial policy adjustment, the loss of farmers' income will greatly dampen farmers' enthusiasm for growing grain. This year, the large-scale drought in the Liao-Ji region in Northeast China has caused a reduction in corn production in some plots. If farmers can no longer receive reasonable compensation, it will be detrimental to the safety of domestic food production. Especially the large grain growers, family farms, and specialized farmer cooperatives that the state has vigorously supported in recent years. These grain growers are all contracting land to grow grain and may suffer even greater losses. If the enthusiasm of farmers and cooperatives to grow grain declines, and a large area of ​​farmers abandon the wasteland and go to cities to work, if things go on like this, the risk of China's food production security will increase significantly.

Trader: The operation difficulty increases accordingly. Judging from the market situation this year, when market liquidity is strong, the market is a buyer's market, purchasing companies generally have low inventories, and market activity has declined. If the price of temporary reserves drops sharply, the market is expected to have excess liquidity and a sharp drop in spot prices. There will be more traders and companies on the sidelines in the market. As the saying goes, "buy the rise, do not buy the fall", and it is unknown at the bottom of the market price. Under the circumstances, the difficulty for traders to earn trade spreads will increase.

Enterprises: Costs and profits are not necessarily synchronized. Although the sharp drop in corn prices will help feed companies and corn deep processing companies reduce the cost of raw materials, this is not the source of the improvement in corporate profits. The decline in raw material costs may not necessarily enable companies to gain more benefits. The current decline in the profits of feed companies is more due to the slowdown in domestic economic growth and the country's anti-corruption and honesty policies, which have led to a decline in the total demand for livestock products from the society, which has led to a decline in the demand for feed products. Even if the price of corn falls sharply, it is still difficult to increase the profit level of feed companies under the premise that terminal consumption does not improve. Regardless of product compression, corn deep processing companies are accustomed to refer to the spot purchase price to set product prices. If the price of corn continues to rise, the price of the company's products will continue to rise. Because the market raw materials are purchased in the early stage, the cost is lower than the spot price. Therefore, the production profit of the enterprise can be guaranteed. However, if the corn price remains low for a long time, then downstream purchasing companies will also pick up as needed, and deep processing companies will be in a state of long-term loss. Therefore, the country also needs to gradually guide the adjustment of market supply and demand structure through measures such as stimulating consumption and guiding the adjustment of planting structure to promote the healthy development of my country's food industry.