Auction points to tightening grain supply in China

China, the world's second-biggest corn producer, sold all of the grain offered in the second series of weekly auctions held in major producing regions, indicating tightening domestic supply, according to analysts.

Traders purchased 800,787 tonnes of the grain from temporary reserves in north-eastern provinces, the National Grain & Oil Trade Centre said in statements on its website. The average price was RMB1,702 (US$249) a tonne, compared with a base price of RMB1,580 (US$231).

China's corn futures have gained 3% this year on concern a drought in major producing regions may have cut output by more than official estimates. Speculation China may need sizable imports spurred gains in Chicago prices this month.

"The result shows supply is tight," said analyst Ding Ling. The market will carefully watch how long the government keeps selling stocks at such a fast rate, he said.

Buyers last week also took the entire 500,000 tonnes of temporary reserve corn on offer, according to the grain centre. Corn for September delivery rose 0.3% to settle at RMB1,927 (US$282) a tonne on the Dalian Commodity Exchange.

Buyers at the auctions are mainly local corn processors, not livestock feedmills, Ding said. Industrial corn processors turn the grain into starch, sugar and other chemicals, whilst feedmills use corn to make compound animal feed.

Feedmills in southern China did not bid in the auctions in the north, as without government subsidies, shipping costs make them too expensive, Ding said.

Separately, China offered 570,400 tonnes of corn in auctions outside major producing regions on Tuesday (Apr 20). Buyers bought 284,200 tonnes, or half of the corn that was auctioned, at an average price of RMB1,874 (US$275) a tonne under a so-called inter-provincial stock-rotation scheme.