May 19, 2010

China to tap reserve amid soaring corn prices

After weeks of rising corn prices, the government announced recently that it would open up the grain reserve to control the fluctuations.

Corn futures contracts for September delivery have risen over 6% since January, hitting RMB1,951 (US$285.70) per tonne Tuesday (May 18). That is a massive jump considering daily trading normally fluctuates between five and 20 basis points.

The price increase was primarily due to the drought in South China, bad weather that pushed back the planting season, and reduced output, said Zeng Liying, vice director of the State Administration of Grain, adding that the national and local grain reserves will be more than adequate to address the current shortage.

However, the state-owned China National Cereal, Oil and Foodstuffs Company (COFCO), the country's largest food processor, manufacturer and trader, has already begun importing corn from the US. Corn imports face high taxes, pushing the price up from RMB1,126 (US$164.89) per tonne when the corn leaves the US to RMB1,962 (US$287.31) per tonne by the time it reaches China.

COFCO, which has purchased between 825,000 and 900,000 tonnes of corn over the past three weeks, may come under heat for its decision to import from the US, the world's leading corn exporter. Nearly all mass commercially grown American corn is genetically modified (GM), a bone of contention among many Chinese.

Over 200 members and deputies of the National People's Congress and Chinese People's Political Consultative Conference signed a proposal to ban GM foods throughout the country earlier this year after reports of unlabeled GM foods being sold in supermarkets stirred up controversy.