January 22, 2008

China to release 6 million tonnes of corn and wheat to cool grain prices

China's state officials announced to release 500,000 tonnes of corn and 5.5 million tonnes of wheat from government reserve this week in efforts to reign the surging domestic grain prices.

Reserve authorities will sell 500,000 tonnes of stockpiled corn today at the Anhui Grain Wholesale Market. On Wednesday and Thursday, officials will sell 4.5 million tonnes of domestically produced wheat and 1 million tonnes of imported wheat from reserves.

Last Wednesday, China's economic planner, the National Development and Reform Commission, expressed the need to directly intervene with the domestic grain prices by placing controls over producers and distributors.

The People's Bank of China, the country's central bank, announced on the same day that it would lift the bank reserve ratio by 0.5 percentage points to 15 percent starting January 25, 2008.

Currently, corn prices have fallen back to October levels in the local market, unaffected by the record run on CBOT. Analysts said this could be an indication of state auctions or new policies having an effect to the industry. However, observers said that demand might weaken as the auction will consist of stale corn and the price is unlikely to be set at an attractive rate.

December rally for wheat prices also evaporated this month, yet it may not be directly caused by state auctions, analysts pointed. Projected demand for imported wheat is not that strong due to significantly higher prices. Domestic wheat take-up is also estimated to be weak as buyers prefer to observe the trend of lower prices before re-entering the domestic market.