January 14, 2011

 

China may refrain from big corn imports in 2011

 

China decided against a plan to arrange millions of tonnes of corn imports, two industry sources with knowledge of the proposal said Thursday (Jan 13), but many analysts still expect China will need to import this year.

 

Both sources cited China's food-related inflation as the reason for the initial plan and high foreign corn prices as the reason for the government to kill the proposal.

 

Corn prices rose last year because of strong demand and a weak 2009 harvest. The government is widely thought to be relatively low on stocks, which some analysts put at below 10 million tonnes, and is fearful of buying up the latest harvest lest it trigger fresh price rises.

 

Rumours of such a bulk purchase have preoccupied the corn market in recent months as China is widely expected to need to import again this year, although US prices are currently too high to make imports into China commercially viable.

 

US prices hit a 30-month high on Wednesday after the USDA slashed its estimate of US corn stocks, making US corn imports even less attractive in China.

 

Chinese President Hu Jintao will this month visit Chicago, where corn and other agricultural futures are traded, but a big corn purchase is not expected, two Chinese industry sources said.

 

"We don't think there will be corn purchases during Hu's visit. As far as we know none of suppliers have been contacted. Any large volume of purchases from the United States seems unrealistic now," said a China-based trader at an international grain trading house.

 

China imported about 1.5 million tonnes of US corn in 2010, the first major purchase in 15 years, after the poor 2009 harvest failed to satisfy demand from animal feed producers and corn processors, who manufacture sweeteners and food additives.

 

However, Agriculture Minister Han Changfu has said the harvest was 10 million tonnes bigger in 2010 than in 2009, strengthening China's ability to remain self-sufficient and weakening the case for imports, at least in the short term.

 

But in 2010, the need to supply feed mills and prevent a price spike trumped the desire for self-sufficiency in grains, and state grains trader Cofco Ltd was authorised to import corn under the state quotas for resale to feedmills. The government wants to close the door again if it can.

 

"China's corn imports can only be opened up gradually, as corn is more important (than soy and cotton) to the national economy and the people's livelihood and the government will aim to be self-sufficient first, and will only seek to expand imports when they can't make it," an analyst said.

 

China's corn reserves may also be low, since the government has sold off about 49 million tonnes since 2009 and has not yet bought up any of the 2010 harvest. The plan to fight inflation by booking bulk imports implies that the shipments would have gone straight to the market, not stockpiles, although the extra supply could have freed up China's own crop for government stockpiling.

 

In the longer term, China's grain supply and demand will be tightly balanced and guaranteeing grain security involves "severe challenges", State Administration of Grain Chief Nie Zhenbang said in a statement on Thursday.