April 6, 2011

 

China may import more corn as reserves fall short

 

 

China may import far more corn than expected before US farmers harvest their next crop, as the country's state reserves were much less than previously thought.

 

China, which has tried to be self-sufficient in grain production, may buy as much as three million tonnes of corn in the 2010-11 marketing year, which ends August 31, according to the council. That would be on top of the 313,700 tonnes China has already bought from the US, according to government data.

 

The USDA has estimated China's corn imports for the current marketing year at one million tonnes.

 

"After reviewing the figures with a number of sources, I believe it is possible that China will purchase another two to three million tonnes," said Thomas Dorr, president of the council.

 

Dorr, who recently traveled to China, said he heard from Chinese sources that state reserves were 10-12 million tonnes less than previously thought. The USDA in March had pegged China's end-of-season inventories at 60.11 million tonnes.

 

The potential for increased demand from China threatens to tighten global corn supplies that have already dropped to a precariously low level. Corn futures on Tuesday reached an all-time high of US$7.7075 a bushel on supply concerns.

 

Grain traders have been on edge about demand from China due to the tight supplies, which are projected to reach a 15-year low in the US by the end of the marketing year. Traders suspect that the resource-hungry nation was the buyer of 1.25 million tonnes of US corn sold to "unknown destinations" late last month.

 

China has needed more grain to feed livestock, because its middle class is consuming more meat. As a result, China last year made its first significant purchase of US corn since 1995, buying about 1.5 million tonnes.

 

Dorr said China needs to be more transparent about the size of its grain stockpiles and harvests to send clear signals to global farmers about how much to grow. Futures markets entice farmers to increase plantings with high prices, yet signals from China have been unclear due to limited information about its output and reserve supplies.

 

"US farmers need consistent signals, and if given the correct ones, they will step up to the task at hand. Chinese buyers and end-users need to be transparent with regard to becoming a sustainable market," Dorr said.

 

The council is an industry group that develops export markets for US grains. Its members, including agribusiness giants Bunge, Cargill, and producers' groups, benefit from increased prices and exports.