June 14, 2010

China faces corn shortage on poor stocks

China's corn stocks are lower than analysts believe, and are suffering significant signs of degradation, leaving the country potentially on course for large imports, industry observers have said.

The US Grains Council (USGC) said, following a visit to growing regions, that it had reconfirmed that China's corn stocks had fallen by 15%.

USDA data, the benchmark for analysts worldwide, see China's US corn inventories stable at 53 million tonnes as of the end of 2009-10, and growing to nearly 60 million tonnes a year later. In fact, China had "very few" temporary reserves left and its national reserves were "not as large as expected", according to USGC.

Furthermore, the quality of China's stocks was "of concern", with 20-30% affected by mould in some facilities, a problem blamed on a wet harvest period and poor storage practices by farmers, USGC said.

"This situation will surely affect the market supply in the upcoming months, before the new crops come onto the market," Sam Niu Yisha, the council's assistant director in China, said.

The scenario left China with two choices – either to run down its stocks or to import corn, signalling a continuation of the purchases of US grain which restarted in April. However, Niu said the opportunity exists for China to import a huge amount of US corn to meet its current market demand.

The USDA on Thursday lifted to one million tonnes, from 300,000 tonnes, its forecast for China's corn imports in 2009-10. The comments came as US observers raised concerns over China's 2010-11 crop which, after being planted late because of a cold spring, now faced a lack of rain.

Meanwhile, analysts suggest the situation calls for rains sooner rather than later or the crop could suffer permanent damage.

Niu also said China's corn crop appeared "not as strong as normal", and that some 2-3% of the area intended for the grain had not been sown with other crops because of the adverse weather.