No. 1 Central Committee Document 2016 Likong Yuanyue Corn and Starch
Document No. 1 of 2016 deals directly with the corn and starch markets in two parts:
Firstly, Article 7 of Point 1 states "Start implementing the plan of structural adjustment of planting industry, stabilize rice and wheat production, and appropriately reduce maize planting in non-dominant areas". We will support major grain-producing areas to build core areas for grain production. Expanding the pilot program of grain to feed and accelerating the construction of modern forage industry system. In 2016, the Ministry of Agriculture intends to reduce 10 million mu of maize planting area and 50 million mu of maize planting area in five years. We believe that maize planting area will only decrease slightly in 2016. In Northeast China, maize mainly competes with soybean and other crops; in North China, maize mainly competes with cotton and other crops. The income from maize planting is obviously better than that of the two competing crops mentioned above. In addition, corn is more labor-saving than competing crops, without delaying hard work and earning money. Therefore, maize area will not decline significantly in 2016. Even if the planting area of maize is reduced by 10 million mu in 2016, it will not help to change the situation of oversupply of Maize in China. According to the latest data of the National Bureau of Statistics, the sown area of Maize in 2015 was 57175 million mu, 10 million mu less than the previous year, a decline of 1.75%, while the total output decreased by less than 4 million tons.
Secondly, Article 22 of Point 5 states that "in accordance with the principle of market pricing and price-compensation separation, we should actively and steadily promote the reform of Maize Storage and storage system. While making maize prices reflect the relationship between supply and demand in the market, we should establish a maize producer subsidy system by taking into account the factors such as farmers'reasonable income, financial sustainability and coordinated development of the industrial chain". This actually satisfies the market's short-term expectations for far-moon corn and starch, but it is still unclear how bad the short-term is. At present, there are rumors in the market that some countries continue to reduce the purchase price of temporary storage maize to 1800 yuan/ton, 1600 yuan/ton, 1400 yuan/ton and other versions. Most market participants prefer 1600 yuan/ton. What's worse, the most negative interpretation is that in 2016 the corn market will cancel the purchase policy of temporary storage. However, the possibility of abolishing the policy of purchasing maize for storage in 2016 is very small, based on the usual comments of various government departments and the national emphasis on food security and rural stability. In a word, No. 1 satisfies the market's bad expectations for the price of corn and starch in the latter period, and under the situation of the short period, we should not blindly measure the bottom, the price is not the lowest but only lower! According to our understanding of policy, we can choose two trading strategies later. Firstly, the trading strategy of buying corn 1605 contract and selling corn 1609 contract is relatively stable and profitable. As of January 25, 2016, the total amount of corn purchased by Linshu was 77.25 million tons, including 35.17 million tons in Heilongjiang, 21.82 million tons in Jilin, 6.41 million tons in Liaoning and 13.84 million tons in Inner Mongolia. Prior to the Spring Festival, the acquisition of near-storage goes straight to 80 million tons. With a large number of acquisitions, and a small stock of traders, feed enterprises and deep processing enterprises, the latter 1605 contract is expected to close to 2000 yuan/ton. In extreme cases, it may rise to 2100 yuan/ton. It can be said that today of contract 1601 is tomorrow of contract 1605. Although the absolute price of contract 1609 is already very low, it still has room to fall. In 2016, it is more likely that the price of near-storage will be 1600 yuan per ton, so as to effectively remove the surplus production capacity of maize. Referring to the spot and futures market after the announcement of 2000 yuan near-storage price in September 2015, the spot market price in North China fell below 1700 yuan/ton (the listed price in front of the manufacturer, not the purchase price of the farmer), and the futures contract 1609 hit a seven-year low of 1703 yuan/ton on September 29, nearly 300 yuan/ton lower than the near-storage price. In 2016, if the reserve price is set at 1600 yuan per ton, the 1609 contract will surely fall below this price level. In the environment of oversupply, the implementation of two de-inventory policies, directional sale and late auction, will increase supply pressure. Secondly, the trading strategy of buying corn 1605 contract and selling corn starch 1609 contract is relatively different. The contract of corn starch 1609 not only bears the shortfall of the purchase price of corn in storage, but also bears the pressure of corn auction, directional sale and seasonal fall of spot corn starch in autumn.
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