April 21, 2011

China corn prices rise as traders stockpile inventories

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Corn prices in major producing areas of China rose slightly in the week to Wednesday (Apr 20), as traders continued to build inventories in response to fears that corn prices will rise further in line with high inflation expectations.

The government has introduced tough measures to limit corn consumption in non-feed sectors, however, to ensure supply for animal feed mills and to stabilize prices.

Prices in Harbin, Heilongjiang province, were between RMB1,960-1,980 a tonne, up RMB20/tonne from a week earlier, while prices in Weifang, Shandong province, were up RMB10/tonne to RMB2,210-2,230/tonne.

The government will limit the amount of corn available to non-feed processors, including sweetener and alcohol producers, to their consumption volume in 2009, traders and media reports said.

Beijing has asked banks to halt loans to companies, excluding state stockpiling agencies, that would have used the funds to buy corn for non-feed processing purposes, they said.

"The move will not merely control current corn prices, it will also lower price expectations," an analyst said. About one-third of China's corn consumption, or about 50 million tonnes, is for non-feed use, she said.

Traders are still supporting corn prices as their high inventories generate considerable warehouse and interest expenses, the analyst said. However, corn prices are facing downside pressure as feedmillers and processors now hold comfortable inventories, and the outlook for animal-feed-related demand remains uncertain.

Corn prices have risen 8-10% in major producing areas so far this year, and increased about 17% since the start of October, when food inflation started to gain significant momentum.