China is on pace to see its 11th consecutive bumper grain crop that will leave the country with a surplus of 150 million tons of grain including rice, wheat, and corn – double the 75 million tons surplus last year. Because of the country’s expensive subsidy program, the government has spent $36 billion over the past two years buying one third of corn produced according to the state media. These government purchases are resulting in China holding 40% of the world’s corn stocks and the announcement that the country plans to build storage with the capacity to hold 50 million tons of grain by 2015. Compounding the situation is the bumper crops expected to be harvested in the U.S. this season with U.S. corn production estimated to reach 14 billion bushels pushing down prices to four-year low. China announced it will begin to end stockpiling of cotton and soybeans by implementing a target price system where the government will pay farmers the difference if the price falls below a targeted price, keeping pricing for grains more market-driven. China has also been working to reduce its 10 million tons cotton stockpile since last year which has resulted in a 20% drop in U.S. cotton futures this year. To read further about China’s subsidy system and the effect it is having on domestic and global markets:
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