March 9, 2012

 

China may import 14% of its corn demand

 

 

According to Beijing and the USDA, they may have exaggerated China's corn yield by as much as 14%, pointing to higher imports from the world's second-largest consumer of the grain that could squeeze already tightening stocks worldwide.

 

If China plugs the gap between projected and actual domestic supply with additional corn imports, it would drive up international prices already near four-month highs. Wheat markets could feel the impact too if Beijing snaps up the grain as a substitute to corn for animal feed.

 

"Many are sceptical over the corn output figure," said Li Qiang, a senior analyst with JC Intelligence (JCI), an influential consultancy. "The industry expected an output increase, but not by as much as the bureau says."

 

China's National Bureau of Statistics said that farms produced a record corn crop in 2011 of 191.8 million tonnes. But enthusiastic local officials often overstate the size of crops in China to impress central authorities and win bigger subsidies.

 

A Reuters investigation based on assessments from some cooperatives, key trading houses and JCI suggests that Beijing has overstated the crop size by between 6.8 million tonnes and 24 million tonnes, the equivalent of between 12 days and 44 days of consumption.

 

The impact of tighter-than-expected supplies is already being felt in the domestic market. Competition between local industry processors and state-owned procurement agencies for supplies is pushing domestic prices higher.

 

State grain buyers are struggling to replenish depleted national stocks, raising the risk the government will limit purchases by processors, whose rapid expansion has been blamed by Beijing for threatening the country's grains supply.

 

Strategic stocks are well below the government's comfort level after three years in which Beijing has drawn them down to boost domestic supply and dampen food prices driven higher by growing demand for meat from an increasingly affluent population. Low stockpiles give Beijing little wriggle room before it has to import.

 

The USDA, whose figures international traders rely on to gauge global demand and supply, estimates the record crop plus imports of four million tonnes will meet China's demand this year.

 

But it may need much more to plug the supply shortfall caused by the crop overestimate, bolstering a global corn market already being hampered by a severe drought in agriculture powerhouses Brazil and Argentina.

 

Just two weeks ago, China bought 120,000 tonnes, it's first purchase since the harvest was completed late last year.

 

CBOT benchmark corn prices hit their highest levels since January this week as drought in agricultural powerhouses Brazil and Argentina worried buyers, although the price is well off the highs of 2010 and 2011.

 

US corn stocks are forecast by the US agriculture department to shrink this year to their smallest level in 16 years, reducing US export potential to meet China's needs.

 

Still, global wheat supplies are in a better position to take up some of the slack. Major producer Australia is expecting record-high wheat output this year, adding to bumper supplies from the Black Sea region.

 

World wheat stocks at the end of the 2011/12 season look set to eclipse the previous record set more than a decade ago, according to the International Grains Council (IGC), which raised its forecast for production to an all-time high.