January 10, 2007

China's spot corn prices set to decline as more supplies become available

China's domestic corn prices are likely to stabilise now that the 4.3 million-tonne corn export issue has been settled, analysts said.

In September and October 2006, China's exporters undertook contracts for almost 4.3 million tonnes of corn at an average of US$163 a tonne. Before the exporters could even bring in the physical stocks, corn futures began an abrupt climb. If the exporters had bought from the market at the higher prices, they would have incurred losses in excess of RMB 430 million (US$55 million).

Prices reached their peak in mid-December but the market has cooled off since end-December. 

In mid December, there was speculation that the government may hold auctions to sell 1.17 million tonnes of corn in Jilin after December 2006 and may sell 300,000¡§C500,000 tonnes of corn in Heilongjiang. Towards the end of 2006, corn stocks in the country was at 30.26 million tonnes, of which more than 10 million tonnes are in reserves, thus the government would have had the clout to exert its influence over the market.

In the end, the auction did not materialise and it was said the government decided to handle the sale of the corn internally.

Still, corn prices have abated from its peak in mid-December, cooling off towards the end of the month.
 

Corn exports have been one of the driving factors behind higher prices, the settlement of the issue is expected to benefit the domestic corn market greatly.  

Analysts feel that as corn stocks would be accumulating fast and margins would be low, the market would be facing the problem of abundant supplies amid lower demand in the near term. Spot prices of corn are expected to make a retreat, starting from the production regions.