* Had been expected to scrap stockpiling as early as this
year
* May cut state support price by as much as 20 pct vs last
year
* Price cut would hurt imports of corn, corn substitutes
By Niu Shuping and David Stanway
BEIJING, Aug 19 (Reuters) - China, the world's No.2 consumer
of corn, will maintain its controversial policy of stockpiling
the grain for another year before it fully frees up domestic
prices, industry analysts said.
The policy, designed to boost rural incomes, had been
expected to be scrapped by as early as this year. It has lifted
domestic prices around 50 percent higher than their
global counterparts, forcing animal feed mills to replace
the use of domestic corn with imports or cheaper substitutes.
"Domestic corn prices will eventually be decided by market
forces and full market prices, which link to international
prices, and this could happen as early as 2017," said Li Qiang,
chief analyst with Shanghai JC Intelligence Co Ltd (JCI).
The National Development and Reform Commission (NDRC) and
agriculture ministry said last month that they would let the
market play a "decisive role" in domestic corn prices,
signalling changes to the current government stockpile scheme.
Analysts said that while stockpiling would continue in the
marketing year that begins in October, the amount purchased
would drop and that the state support price for corn would also
fall, as the government looks to balance the interests of
farmers and downstream processors.
Analysts said the finance ministry and the NDRC believe the
state support price should drop by as much as 20 percent from
last year's level to 1,800 yuan ($296.75) per tonne. Those
bodies did not immediately respond to requests for comment.
However, they said such a large reduction is opposed by the
Ministry of Agriculture as it could pose problems for major corn
producing regions in the northeast, responsible for about 40
percent of China's output of the grain. The ministry did not
immediately comment.
"The market is widely expecting a price cut (for the new
crop), though the range differs," said Meng Jinhui, an analyst
at COFCO Futures Co Ltd.
Analysts said the price cuts would help make Chinese corn
more competitive and help revive loss-making downstream
industries.
They said the government was also planning to reduce
purchase volumes for state reserves by imposing strict quality
requirements.
The price cuts could reduce imports of corn and corn
substitutes by more than 30 percent, said JCI's Li. He estimated
imports next year would fall to 20 million tonnes, from 30
million this year.
China's imports of corn and corn substitutes, including
sorghum, distillers grains (DDGS) and barley, whose imports are
not subject to quotas, have hit records in 2015/16, driven by
cheap overseas prices.
Price cut expectations have weighed on the January 2016
Dalian futures contract DCCF6 which was trading at about 2,000
yuan per tonne, lower than current cash price of
2,350 yuan per tonne in the country's largest grain port in the
north.
($1 = 6.4026 yuan)
(Editing by Joseph Radford)