March 19, 2012

 

China's Dalian corn hits record high

 

 

China's Dalian corn soared to a record level on Friday (Mar 16), on target for its largest weekly gain in almost a year, as the market was buoyed by tight local stock that is triggering talk of bigger imports.

 

The rally in China's corn market is expected to propel global grain prices higher as it will take at least six months before new-crop supplies in the US, the world's top exporter, replenish stocks estimated to be at their lowest in 16 years.

 

"That the government has purchased very little indicates the domestic market has risen to take supplies away from the government," said Paul Deane, agricultural commodity strategist at ANZ. "It is very supportive of grain markets globally as the tightest part of the year in terms of supplies has yet to come."

 

The most-active September contract on Dalian jumped about 2% to as high as RMB2,497 (US$390) per tonne, taking gains so far this year to about 10%, outstripping a 3.2% gain in the global benchmark US corn futures. US corn was trading at US$262.8 a tonne by 0746 GMT.

 

Sinograin, the manager of China's state grain reserves, has stockpiled only 1.2 million tonnes of corn from last year's harvest since December, an industry website quoted a company official as saying on Thursday.

 

The volume was just over a tenth of the 11 million tonnes stockpiled as "temporary reserves" from the 2010 harvest, said Song Zhiyuan, an official with the purchase department of Sinograin.

 

"Yields in northern China are lower because of the weather and a lack of sunlight so it is clear that supplies are getting tighter," said Wang Na, agricultural analyst with Everbright Futures in Dalian. "Imports are likely to increase as supplies are just not sufficient."

 

While fundamentals are boosting Dalian corn, technical charts also indicate that prices could rise further, Reuters market analyst Wang Tao said.

 

Dalian third month corn contract is expected to rise to RMB2,700 (US$426.97) per tonne over the next four weeks, to post a gain of about 9% from the current level.

 

Prices are headed for a 2.4% gain this week, their biggest weekly rise since March last year.

 

Higher domestic corn prices have opened up an opportunity for arbitrage between CBOT and Dalian corn.

 

Traders said landed cost of imported corn into China was around US$337-$340 a tonne, including freight, while feed millers in central China were paying close to US$375 a tonne.

 

Rising prices of corn, which is largely used to feed animals, will translate into expensive pork, China's staple meat, stoking food inflation.

 

Traders and analysts say China and the influential USDA may have overstated the China's corn crop by as much as 14%, which is likely to keep domestic prices higher and result in more imports.

 

China's corn imports are expected to more than double in the current 2011/12 crop year to four million tonnes from 1.5 million a year earlier, a senior official at a state-run company said at an industry conference in Singapore on Wednesday.