April 10, 2007

 

China expects tight corn supply, even as demand falls from feed industry

 

 

China expects its corn supply to remain tight this year, despite expectations of lower corn demand from the feed industry.

 

The feed industry would likely cut its use of corn by 2 million tonnes to 94 million tonnes in the year ending September, as the spread of pig disease was projected to reduce demand, according to estimates by the China National Grain and Oil Information Centre (CNGOIC).

 

The lower corn demand may also be seen from the fact that some alcohol plants, with corn as raw materials, have been running at low capacity after Beijing scrapped export tax rebates last year, taking away the impetus to manufacture more for exports. 

 

Still, Beijing is keen to raise domestic production to avoid heavy imports in the event of shortage, officials said on Monday.

 

Rapid development of the corn processing industry is seen to tighten domestic supply, Chen Mengshan, a senior agricultural ministry official told a news conference on Monday.

 

The tightness coupled with high domestic corn prices may force Beijing to think twice before allowing fresh exports in coming months, traders said.

 

However, talk in the futures market of new export quotas for between 1 million and 3 million tonnes supported Dalian corn futures contracts.

 

Increasingly, China may have to rely on its own production, as the volume of world corn trade is falling. This is especially so as exports from the US, the top corn exporter, is expected to decline as more corn is used for ethanol production in the country.

 

Analysts said the National Development and Reform Commission (NDRC) is unlikely to allow any fresh exports in the short term. It allowed exports of some 4 million tonnes late last year. 

 

Talk of fresh exports came as stockpiles are rising in Chinese ports as domestic demand from feed, alcohol and ethanol industries weakens, traders said.

 

The agriculture ministry's Chen said China is looking at annual corn output of 150 million tonnes in 2010, up from a targeted 145 million tonnes in 2007. As China has limited land for planting, Chen said it would focus on raising density of planting and apply more fertilizer to raise yields and production.