March 28, 2011

 

Rumour sale of 1.25-million-tonne US corn seen likely to China

 

 

The US posted Friday (Mar 25) its sixth-largest single-day corn deal ever, which effectively confirmed a week of rumours of a big Chinese purchase that had sent prices up to more than 10%, according to traders .

 

The USDA said exporters sold 1.25 million tonnes to an unspecified buyer, one million of it for shipment in the current marketing year ending August 31. If the buyer is indeed China, cumulative sales would rise to about 1.3 million tonnes, above the latest USDA forecast for one million.

 

Benchmark US corn futures on the CBOT rallied 2% to a near-three-week peak of US$7.17-1/4 per bushel in response to the sale before falling to about US$6.95 a bushel by midmorning as investors booked profits.

 

China made its first large US corn purchases in four years last April, ultimately buying nearly 1.5 million tonnes from the US. Sales, however, had stalled since October.

 

"This is the China announcement we've all been waiting for. Perhaps a bit bigger in the old crop than the trade was looking for, but essentially what we were looking for, and the rumours are there is another 500,000 tonnes behind it," said Charlie Sernatinger, an analyst with ABN Amro.

 

The US corn market is more sensitive than ever to any sign of increased buying by China, which is the world's second-biggest consumer but until recently had been largely self-sufficient.

 

US corn stockpiles are set to fall this year to their tightest since before World War Two, due to high exports and increased use for ethanol.

 

Rumours that China had purchased a large volume of US corn began late last week and sparked a two-day, 11% rally in corn futures. The market stagnated early this week amid a lack of USDA confirmation before spiking again on Thursday on renewed speculation that sales had been done.

 

Traders said there was further talk Friday that another 500,000 tonnes in sales to China could be announced next week, unanticipated demand that would require adjustments to the current supply/demand balance sheet.

 

"The amount this morning is just a shot across the bow. If there is more to come, that is when you start to change the market dynamics," said Dan Basse, analyst with AgResource Co.

 

"Our guess is that we're reducing Japan's demand a little bit so China kind of fills that hole," he added, referring to an expected near-term decrease in imports by Japan following its severe earthquake and tsunami two weeks ago.

 

Further large sales to China would likely require other corn users such as livestock feeders and ethanol producers to ration demand because corn supplies were already historically tight, Basse said.

 

The USDA has officially forecast China's corn imports in the 2010/11 marketing year at one million tonnes, but a USDA attaché in Beijing said more recently that 2010/11 imports could total 1.5 million tonnes.

 

China has already imported about 300,000 tonnes of US corn this marketing year, shipped in September and October, so another one million tonnes of old-crop imports could necessitate an upward revision of the USDA forecast.