Low harvest triggers escalating corn prices in China

Corn prices have shot up to record highs in China's top corn growing areas, raising concerns that the country's 2009 corn harvest could fall even more than previously thought because of drought. 

 

The large output fall coupled with a pick-up in demand from feedmills and corn processors could open the door for more imports in the middle of the year when domestic supply tightens, traders said.

 

The price rise was also driven up by Beijing's policy of offering subsidies to state enterprises and feedmills to buy corn in the northeast, aiming to help rural farmers boost incomes.

 

The domestic price has risen much faster than expected, the major reason being a lower harvest, said Li Qiang, chief analyst with a private intelligence firm.

 

The firm has revised the country's corn output and estimated 2009 output could fall by between 26-28 million tonnes from 2008 levels to about 140 million tonnes.

 

The output estimate was far below the 163 million tonnes forecast by an official think tank, the China National Grain and Oils Information Centre (CNGOIC).

 

Beijing's subsidies have prompted state enterprises and feedmills to snap up supplies in the northeast and farmers, seeking higher prices, were also slow in selling their crops.

 

Corn prices in the northeastern province of Jilin - the largest producing region - were quoted at RMB1,720 (US$251.9) per tonne, up 25% from a year ago. A similar rise was seen in Guangdong, a major corn-consuming region in the south, until a release of government supplies helped ease prices.

 

"We think the price rise is related to a low harvest. We are still keen to import whenever the prices are attractive," said one trading executive with the New Hope Group, the country's largest feed mill.

 

Chinese feedmills have been increasing imports from Southeast Asian countries last year to meet temporary shortages caused by logistics.