Soybean, corn and wheat prices fell, and subsequent grain prices are expected to enter a relatively stable period

Grain prices are related to the national economy and people's livelihood, and they are linked to producers and consumers. Recently, the decline in domestic grain prices has aroused concern. What is the current level of food prices as a whole, what are the reasons for the decline, and what is the future trend?

It is still at a medium to high level

The current round of food price declines was mainly concentrated in soybeans, corn and wheat. According to the State Food and Material Reserves Administration, as of December 6, the purchase prices of wheat, corn, soybeans and rice (taking japonica rice as an example) were 2,907 yuan/ton, 2,578 yuan/ton, 4,886 yuan/ton and 2,825 yuan/ton, respectively. Compared with the same period in 2022, the purchase price decreased by 15.53% for soybeans, 10.42% for wheat and 10.89% for corn, and the purchase price for rice increased slightly by 2.47% year-on-year, and compared with November, the purchase price decreased by 1.26% for wheat, 0.69% for corn, 0.51% for soybeans and 0.21% for rice.

The current round of food price declines began with soybeans, followed by corn and wheat. The purchase price of soybean fell by 430 yuan/ton from 5,316 yuan/ton in June, the purchase price of corn fell by 248 yuan/ton from 2,826 yuan/ton in September, the purchase price of wheat fell by 52 yuan/ton from 2,959 yuan/ton in October, and the purchase price of rice fell by 22 yuan/ton from 2,847 yuan/ton at the end of October.

Although food prices have continued to fall in recent times, the trend is biased towards a volatile correction, and food prices are still at a medium-high level since the epidemic. Specifically, at the beginning of 2020, the overall price of grain was at a low level, and the purchase prices of the four crops were 2,319 yuan/ton for wheat, 1,755 yuan/ton for corn, 3,532 yuan/ton for soybeans, and 2,599 yuan/ton for japonica rice; However, the highest point of rice prices occurred at the beginning of 2021 at 2,880 yuan/ton, and as of early December, the purchase prices of the four crops have all decreased from the highest point, falling by 10.42% for wheat, 10.89% for corn, 19.74% for soybeans and 1.91% for japonica rice.

The formation of domestic grain prices is mainly based on market supply and demand, supplemented by policy coordination, and is also affected by fluctuations in international grain prices. In addition to the impact of the decline in international grain prices, the main reason for this round of grain decline is the strong domestic supply and weak demand.

The supply reserves are sufficient

In 2023, the country's total grain output will be 1,390.82 billion catties, an increase of 17.76 billion catties or 1.3% over the previous year, and the mainland's grain will remain stable at more than 1.3 trillion catties for nine consecutive years.

Although the output of wheat and rice has decreased slightly this year due to the weather, by 2.27 billion jin and 3.78 billion jin respectively, the self-sufficiency rate of wheat and rice in the mainland is high and the stock is abundant, the supply of wheat is sufficient, and the self-sufficiency rate is basically stable at more than 98% (except for the wheat self-sufficiency rate of 92.18% in 2021), coupled with last year's bumper harvest, the balance without considering imports reached 11.587 billion jin, and the carryover rate is high; Corn is different from the previous two types of crops, although there is a slight gap in domestic supply, but this year's corn sowing area increased by 17.232 million mu compared with last year, and the output increased by 4.2% over the previous year to 577.68 billion catties. Since late November, the amount of corn on the market has increased significantly, the progress of grain sales by farmers has accelerated, and the grain source of corn in circulation in the market has continued to increase. As the soybean with the greatest supply pressure, the mainland has vigorously expanded the planting in the past two years to achieve practical results, soybean production continued to increase, on the basis of last year's increase of 23.71% over the previous year, this year's output increased by 2.8%, reaching 41.68 billion catties, and this year's domestic soybean production continued to increase and the quality is significantly better than usual.

Grain imports are an important channel for ensuring a stable supply of domestic grain, and the mainland has been committed to building a diversified pattern of grain imports for many years, and the scale of grain imports has also been expanding. Since the beginning of this year, international grain prices have continued to weaken, and the mainland has strengthened imports and increased reserves. According to the data of the General Administration of Customs, from January to November, the mainland imported a total of 143.737 million tons of grain, a year-on-year increase of 9.1 percent, of which 89.625 million tons of soybeans were imported, an increase of 13.3 percent year-on-year, and 10.83 million tons of wheat were imported, an increase of 37.7 percent year-on-year...... With the increase in the volume of imports, wheat, corn, soybean and other varieties have an increasing impact on the domestic market price. Before this year, the domestic and foreign grain markets were affected by a variety of factors, and there was a mismatch between supply and demand. This year, the impact of these factors has gradually weakened, demand has fallen, and supply pressures have begun to show in a concentrated manner; in addition, due to the impact of the Federal Reserve's monetary policy, the speculative funds that drove the sharp rise in food prices in the early stage have returned, and food prices have gradually returned to fundamentals. In November, affected by the sharp drop in world maize prices, international coarse grain prices fell by 5.6 percent month-on-month, and international wheat prices fell by 2.4 percent, and the decline in international food prices will have a further impact on domestic food prices.

Efforts should be made to stabilize food prices

At present, the domestic demand for grain is generally weak, which is manifested in the sluggish demand for food, the weak demand for feed, and the average demand for industry.

Demand for food is sluggish. Wheat and rice are the two traditional food rations of the continent. In 2022, wheat and rice food consumption accounted for 69.17% and 73.79% of the total consumption of the two grains, respectively, while soybean and corn consumption accounted for 13.79% and 3.41%, respectively. Affected by factors such as the economic environment, the consumption of flour and soy products is sluggish, and although it is approaching the end of the year, the demand growth is less than expected. As far as wheat is concerned, household consumption demand is not strong, the market lacks a certain hoarding sentiment, the operating rate of flour enterprises is low, and the demand for replenishment of wheat is limited. Weak demand for food has weakened food prices and prices have continued to fall, while rice demand has been stable, but prices have also been weakening due to the single demand and the weakening demand for food rations. As the amount of new rice on the market continues to increase, the supply pressure continues to increase, and the price of rice is further pressured; in terms of soybeans, domestic soybeans are mainly used for food, and imported soybeans are mainly used for feed and crushing. However, the consumption of domestic soybeans weakened, and after the increase in production on the supply side, the originally weak demand market could not absorb the increased production.

The demand for grain feed is weak. The feed formula of the mainland aquaculture industry is dominated by corn and soybean meal, which is a by-product of soybean crushing, and the feed demand directly affects corn and soybean. Among the four crops, the feed consumption of corn usually accounts for more than 60% of the total consumption, the crushing consumption of soybean usually accounts for about 85% (about 780 kg of soybean meal per ton of soybean crushing), the proportion of wheat feed consumption is usually between 9% and 23% according to the price relationship between wheat and corn, and the proportion of feed consumption of rice is between 7% and 12%, which has shown an upward trend in recent years. The reason for the weak demand for feed grain is mainly that the price of live pigs on the demand side continues to be sluggish, the breeding is in a state of loss, and the meat and poultry and egg poultry are not optimistic. The demand for feed grain in feed enterprises is at a historically low level. According to data from the Feed Industry Association, the national industrial feed output in October was 27.62 million tons, down 2% month-on-month. Taking soybeans as an example, the Ministry of Agriculture and Rural Affairs further lowered the domestic soybean crushing forecast for December by 920,000 tons due to the consumption demand for soybean meal falling short of expectations. Wheat feed demand was affected by sluggish demand for corn and soybean meal, and bran prices also fell further.

The consumption demand of the grain industry is average. The highest proportion of industrial consumption among food crops is maize, followed by wheat and finally rice, accounting for 28.17%, 9.25% and 7.86% of the total consumption of all categories in 2022, respectively. In November, the price of corn deep-processed products rose steadily, taking starch and alcohol as an example, the national average price increased by about 40 yuan/ton and 30 yuan/ton respectively compared with the previous month. In terms of deep processing, corn consumption is expected to improve, which will play a certain supporting role in corn prices.

In the face of the decline in food prices, many places have recently introduced a variety of measures to promote the stable operation of food prices, and it is expected to return to fundamentals. In terms of stabilizing supply, the mainland has built a "three-in-one" policy support system of price, subsidy and insurance to reasonably protect farmers' income from growing grain, and the policy of minimum purchase price of grain has been launched in a timely manner, clarifying the "policy base" of the grain market, and issuing a one-time one-time subsidy for farmers who actually grow grain in 2023, and the main grain producing areas will try to achieve full coverage of full cost insurance and income insurance, and further pilot soybean planting income insurance, which will reduce farmers' business risks. In terms of promoting demand, approaching the Spring Festival, the increase in demand for livestock and poultry meat is expected to boost the demand for feed grain, and the demand for rations will also increase.