China taps rarely used corn reserve to overcome shortage problem

China is tapping its rarely used regular reserves of the grain in its weekly auctions to ease a shortage caused by lower production in the major growing provinces.

The government will auction one million tonnes of corn on June 11 supplied from both temporary reserves in four northeast provinces and regular stockpiles, the Hefei National Grain Trade Centre said on its website.

China has sought to cool record domestic prices by boosting imports to the highest level in 14 years and by selling inventories. China has offered 5.7 million tonnes from temporary stockpiles in Heilongjiang, Liaoning, Jilin and Inner Mongolia, and sold 99% of them.

The government probably has no more than two million tonnes of temporary reserves, which may last only two more weeks at the rate of current auctions, Dong Shuangwei, manager at Capital Futures Co. said. For the government to use its regular reserves is unheard of, and the amount of these rarely used stockpiles is a secret, Dong said.

Importers led by state-owned Cofco Ltd. have ordered a total 595,100 tonnes of US corn as of May 20, government data showed. More purchases may be made as US prices have fallen, making imports more profitable, Dong said.

The price gain has boosted costs of livestock feed, hurting profits of hog raisers and threatening to fan inflation. The government would use regular reserves if necessary to stabilise the market, the State Administration of Grain said May 24.

China's spot corn prices have jumped about 14% since October at Dalian port, the biggest hub for shipping grain from northeast regions to livestock producers in the south such as Guangdong. Prices rose on growing speculation drought last year reduced output more than officially reported.