(Corrects paragraphs 3, 4 to make clear that industry sources gave the possible new price, not the govt official)
* State grain authorities may announce cut on Friday -sources
* Higher prices had boosted feed mill imports of corn substitutes
By Niu Shuping and Dominique Patton
NINGBO, China, Sept 18 (Reuters) - China will cut the price it pays for corn for its state reserves by as much as 10 percent for the 2015/16 marketing year, industry and government sources said.
The nation has been buying corn from its farmers at a price that is higher than the market in order to bolster rural incomes. But the inflated price has encouraged feed mills to import growing volumes of corn substitutes like sorghum and barley and made it harder for Beijing to sell down bulging state reserves estimated at 150 million tonnes.
The proposed cut is awaiting approval by the State Council, the country’s cabinet, a senior government official told Reuters at a conference in Ningbo in eastern China.
It would take prices to around 2,000 yuan ($314) per tonne, three industry sources said, adding that state grain authorities may announce the cut after holding a meeting on Friday.
Although that is still around double international corn prices, the move would be the first such cut since 2008 and market participants said it could pressure prices of substitutes for the grain.
“No matter what kind of step we take, we have to ensure that farmers’ incomes are protected from decreasing while the market can also accept the price,” said the government official, who was not authorised to speak with media.
Feed mills have been hoping that Beijing would slash prices to bring them closer to international prices.
State purchasing of corn pushed domestic corn prices in 2014/15 almost 50 percent higher than global prices, triggering strong imports of substitutes like sorghum and distillers’ grain.
Chinese buyers have recently slowed their imports of corn substitutes however, on expectations that lower domestic corn prices could wipe out profits on imports.
Uncertainties over the new corn price have driven U.S. sorghum prices down to $220 per tonne from previous offers of $270 per tonne, said one trading manager with an international trading house.
The industry is also expecting Beijing to reduce volumes of corn it buys for reserves this year by imposing strict quality requirements.
“Less purchases by the government will leave more supplies in the market and if the downstream industry is not building stocks, could trigger domestic corn prices to fall further below the support price. Everybody is bearish on domestic corn,” added the manager.
Soybean traders said low domestic corn prices could also hurt consumption of soymeal, which has seen increasing use over the past year due to its price advantage over corn.
$1 = 6.3630 Chinese yuan renminbi Reporting by Niu Shuping and Dominique Patton; Editing by Richard Pullin and Joseph Radford