Corn traders face price fall risk in China

China's corn traders face the risk of falling prices due to high inventory levels and possible government policies, according to industry participants.

Rising corn prices amid concerns over tightening supply, due partly to a fall in corn output last year, have pushed local traders and processors to pile up stocks.

Industry participants said on the sidelines of an oil and grain market conference that corn output this year may fall by at least 10 million tonnes due to delayed planting and bad weather outlook.

Feed meal companies now have corn supplies for at least a month's use, and such supplies may total 20 million tonnes, while traders may have about 10 million tonnes of supplies, said a trader with a big feed meal company.

China's corn prices are at their highest levels since the mid-90s, with cash prices at RMB2,000/tonne (US$293) at Dalian.

However, Zeng Liying, deputy chief of the State Administration of Grain, said Monday (May 24) at the same conference that the government will sell corn from long-term strategic central reserves if needed after clearing the temporary reserves, adding a third of the central reserves can fully meet market demand.

Traders will face the risk of falling prices once the government provides the market with greater supply, said Ma Feng, an analyst with Maike Futures Brokerage Co.

Meanwhile, the outbreak of hog diseases such as blue ear disease is more serious this year, threatening the recovery of feedmeal demand.

Industry participants said feedmeal demand so far is still lower than a year ago, although it has picked up somewhat from the start of this year. Breeders are unwilling to raise more hogs due to disease and loss worries, said analyst Xia Rui.