March 30, 2012

 

China to buy more US corn shipments

 

 

According to Li Qiang, chief analyst with Shanghai-based JC Intelligence (JCI) Co. Ltd, there are four or five more corn cargoes, which are about to be signed between US and China.

 

Also, they expect feed mills to buy between 1.3 million and 1.5 million tonnes at least for 2012.

 

The latest purchases were made from multiple sellers at prices in the low US$320s per tonne, including cost and freight, the trade sources said, but declined to comment on which grain companies were involved.

 

China, historically self-sufficient in corn, has become a large importer in recent years as demand has outpaced its domestic production.

 

China has allocated 2.16 million tonnes of corn import quotas to private buyers, 30% of a total of 7.2 million tonnes for the whole of 2012 under its commitments as a member of the Word Trade Organisation (WTO).

 

Official think-tank the China National Grain and Oils Information Center (CNGOIC), confirmed purchases of five cargoes this week by southern feed mills, saying the US corn after import duty has a price advantage of RMB150 (US$$23.79) per tonne over domestic prices at Shenzhen in the south.

 

JCI's Li said some feed mills allocated import quotas smaller than a full panamax cargo load of 55,000 to 60,000 tonnes, are combining quotas together to make full loads.

 

"The domestic corn supply is pretty tight, particularly of good quality corn from the northeast," said one trading manager with a major feed mill in southern Guangdong. "The corn quality in northern areas is not good and there is a risk in using the corn for feed production."

 

Corn in some northern areas, which supply more than a third of China's total corn output, was hit by excessive rains last year during harvest.

 

"There will be another three cargoes of imports, future import volume might not jump too much," one trading executive with a major feed mill in northern Shandong, whose company bought two US corn cargoes in February at US$310 per tonne, told Reuters.

 

Imports under China's tariff rate quota system are charged a 1% duty and non-government buyers are charged an additional 13% value added tax.

 

China has imported around one million tonnes of US corn in each of the past two September-to-August marketing years.

 

Through mid-March, China had booked 3.8 million tonnes in US corn purchases for shipment in the 2011/12 marketing year, according to USDA data.

 

This week's purchases would carry that total above the USDA's latest forecast of four million tonnes for 2011/12 imports by China. Several private forecasts have called for even larger imports.

 

"We've already started factoring in that USDA is at least one million tonnes too low on their forecast for Chinese corn imports," said Citigroup analyst Terry Reilly, citing large sales on the books and expectations for further buying.

 

"Importing corn into southern China has proven to be lucrative to both private and government buyers," he said.

 

Corn futures on the CBOT declined on Wednesday (Mar 28) despite widespread talk of the large sale to China as traders were squaring positions and liquidating longs ahead of a US government report on prospective plantings and quarterly stocks on Friday.

 

Rumours of Chinese buying have fuelled strong futures market rallies in the past, but traders said selling pressure on Wednesday more than offset news of the sales.

 

The benchmark May delivery contract has dropped 4% so far this week and closed Wednesday down 1.7% at US$6.20-1/4 per bushel.