China's traders doubtful of corn import boom

Agricultural markets are abuzz with speculation about Chinese corn imports, after China bought US corn for the first time in four years, but scepticism exists among traders in China.

 

The speculation may be premature: after the USDA said China had bought two cargoes last week, nobody is admitting to buying any more. Even the 115,000 tonnes bought so far may face obstacles getting to market.

 

"We will wait and see how the two cargoes get through customs. Right now, our management thinks it is still too risky to import genetically-modified corn," said one trading manager with a major feedmill in Guangdong in south China.

 

"For many feedmills, it is not an easy process if you want to import. It takes us three to four months to get an import permit," said the manager. Imports of genetically-modified crops require a permit from China's Quarantine Bureau.

 

 

But a poor harvest last year and talk of thin supplies in the next three months has buoyed up traders' hopes of rising Chinese prices, which could warm up interest in imports.

 

"There is a panic buying of corn here. For imports, there is more talk but little done," said one corn trader with an international trading house.

 

Demand from buyers - feedmills and corn processors - has risen thanks to high livestock numbers and processors running at high capacity with healthy margins.

 

"We have the similar view as USDA that in the mid- to long-term, China will become a relatively small importer of corn as the demand continues increasing, especially for the meat industry and as feed," Alberto Weisser, chairman of Bunge Limited, told a conference call on April 29. "We see we are a part of this process of shipping corn, but it is not very clear yet how much it will be this year. But I think it is a positive trend for the industry."

 

The vast size of China's market means that a small shift in its supply-demand balance can make big waves globally, a phenomenon that has electrified the coal market.

 

The government has still not published final numbers for last year's corn harvest, but the market estimates drought may have cut the crop by about 20 million tonnes from 166 million tonnes harvested in 2008, prompting some to ask if China is running out.

 

"The market is anticipating a supply shortage in June, July and August," said a trading executive with a large feedmill in Beijing. "It seems everybody is considering importing but in practice it is not so easy to do."

 

An executive at a corn processor in Shandong said his company had been offered imports, but it had not taken them because of low US corn quality last year, when vomitoxin was widespread in the eastern US corn belt due to wet weather.

 

"US corn quality can be used for feed production, but it's not good enough for starch production," he said.

 

An executive at a feedmill expressed the same concern for its piglet feed production.

 

China has been auctioning about 1.38 million tonnes every week to help stabilise the market. Analysts have said it could sell more after the planting season. Beijing has postponed next week's auction in the northeast and one trader said the government was probably trying to restrict bidding by profitable corn processors in order to ensure feedmills have enough supply.

 

Traders estimated the government has about 10 million tonnes left for its temporary reserves and about 30 million tonnes of permanent reserves.

 

Traders in Heilongjiang province, a major growing area in the northeast, said farmers there were still holding about 30% of last year's harvest, more than usual.

 

Last year the government offered state-owned trading firms subsidies to stockpile corn. Together with other trading firms, they are estimated to hold 15-20 million tonnes, traders said.

 

Active bidding at the auctions and sustained high prices were seen by many as evidence that there was a shortage and prices would remain strong until the new harvest in September.

 

Lower-than-normal temperatures during the planting season in China's northeast have delayed seeding, adding to fears that the harvest could fall again if corn is not planted next week.

 

"The market is worried about supply in coming months and there is strong anticipation that there would be a shortage," said private corn trading manager Feng Jilong.

 

Such anticipation has prompted both trading firms and farmers to hoard corn, Feng said. Otherwise supply was balanced, he said.