March 18, 2008

China to purchase additional 4 million tonnes of corn

Beijing announced plans to buy another 4 million tonnes of corn from major growing areas to support prices as farmers prepare for planting, officials said Monday.

China Grain Reserves Corp (Sinograin) said it would buy corn in the provinces of Heilongjiang, Liaoning, Jilin and Inner Mongolia, in addition to planned buying of a similar amount that was decided in January.

The large purchase was due to worries that low prices may discourage farmers from planting less corn, especially now that soy prices have reached new highs.

Sinograin will buy when corn prices fall to between RMB1,380 (US$194.76) and RMB1,420 ($US200) per tonne, which is the current range in the northeast area.

By supporting prices, Beijing hopes to encourage corn production after tight supplies in 2007 helped to drive up feed prices and inflation.

However, Beijing is caught between wanting to cap prices for consumers and wanting to keep prices high enough to encourage farm output.

While Beijing was buying corn for reserves in the northeast, it was selling reserves in the south.

China's government will sell 340,000 tonnes of corn from state reserves on Tuesday.

Spot corn prices have been falling due to a series of government auctions late last year.