China's 2012 corn prices hit record high

 

 

This year, the corn prices in China are 10% higher to a record level.

 

Hopes of China becoming a significant corn importer are propelling global grain prices higher.

 

But corn bulls may have underestimated Beijing's will for self-efficiency in a key agriculture commodity of which only America is the major exporter. Corn prices will prove vulnerable once China starts working on pig-farming efficiency and supply-chain bottlenecks.

 

Corn bulls are betting on a repeat of what happened to the global soy market. A former exporter in soy, China is now the world's largest importer and consumer, taking in 55 million tonnes, or 60% of annual global trade.

 

Similarly China, once a net exporter of corn, imported more than one million tonnes in each of the last two years. USDA projected China to import at least two million tonnes in the current season.

 

Beijing eliminated quotas and tariffs on soy a decade ago, but isn't likely to lift corn import quotas soon.

 

Corn is strategically more important than soy, making up about half of the animal feed versus just 20% for soy meal.

 

Corn is also more expensive to ship than soy. The US is the world's only major corn exporter, and China would rather not rely on a single country for such an important agricultural good.

 

China can control rapid demand growth by building more efficient pig farms. Currently it takes three pounds of feed to turn into a pound of meat. Lowering that ratio to European standards would save 20% on corn feed.

 

Moreover, corn supply is rising fast in China. Small farmers in Northeast China, where production is concentrated, are switching to corn instead of soy. But railways in the region are often prioritised for coal traffic, not corn.

 

Were it not for those transport problems, China actually does produce more than enough corn for its needs.

 

China had a record crop in 2011. The current jump in corn prices may be due to hoarding. Chinese corn farmers are holding out for even higher prices, according to a survey by the Dalian Commodity Exchange.

 

Since China's corn shortage isn't as bad as thought, those farmers may be in for a disappointment.