China to unleash rice reserves amid rising corn prices

China’s state-owned grain stockpiler is prepared to kickstart the rice auction program for 2023 next month in an attempt to cool high prices of feed ingredients in the domestic market, several market sources said on Wednesday.

The total volume of rice reserves to be sold to the market via auctions will be around 15-18 million tons and most of which will be reserves of old crops harvested in 2018 and 2019.

Around 13 million tons will be sold in Heilongjiang province alone.

Although the gross volume this year is lower than that of 24 million tons in 2022, it is open to a wider group of buyers including major feed producers and hog breeders such as Muyuan Foodstuff, New Hope, Twins Group, and Haid Group, who are facing a higher cost of inputs.

The stockpiler has given the right to participate in the rice auctions to a total of 11 companies, a higher number than usual as it granted access to five animal feed producers on top of the usual state-owned participants including Cofco, Sinocham, and China Resources.

“It is likely to control corn prices. It is also a normal stock rotation as you can see the reserves are very old crops,” said one China-based analyst.

Cash prices for corn in China have been moving in an upward trend since the start of the 2022 calendar year which is largely in line with the international market as exports out of the Black Sea market remain disrupted by the ongoing war in Ukraine.

Cash corn prices hovered at 3,000 yuan per ton as of last week, up 5% year on year.

However, corn is a main ingredient for energy in China’s animal feed sector. More than 60% of the feed formula is corn, followed by soybean meal which is the main source of protein.

As corn prices stay high throughout 2022, feed producers purchased more barley and sorghum to replace corn in their supply chain.

Nonetheless, imports of barley and sorghum into China shrank year on year in 2022 as domestic prices in China did not keep up with the pace of inflation aboard, giving little incentive or opportunity for grain importers to buy.