July 4, 2011

 

 

China has bought as much as 1.6 million tonnes of new-crop US corn in recent deals, taking advantage of a steep fall in global prices from record highs over the last three weeks to replenish its reserves.

 

US corn futures tumbled for the second day in a row on Friday (Jul 1) after a US government report showed corn stocks were much higher than the market had expected and farmers planted the crop on a bigger area than anticipated.

 

Sinograin, which manages the state grain stocks, bought cargoes earlier this week, three traders said Friday.

 

"Sinograin bought before the (latest) Chicago price fall," said one trading manager with an international trading house, referring to Thursday's selloff.

 

"The current price is very attractive, but we don't know if it is going to buy more as such purchases are decided by government authorities."

 

The harvest-month December corn contract dropped more than 5% to US$5.87-1/2 per bushel on Friday, adding to Thursday's tumble and taking the contract's two-day fall to nearly 10%. Corn futures have fallen 21% from a record high of US$7.99-3/4 a bushel on June 10.

 

China's Dalian corn prices traded down more than 1%, pressured by a sharp slump in Chicago Board of Trade corn prices and concerns over Beijing tightening credit further.

 

The selloff is likely to prompt the world's top importers, including Japan and South Korea, to take China's lead and lock in supplies.

 

Indonesia has already hiked its forecast for corn imports as prices fall. It expects to import more than three million tonnes of corn this year, as domestic output falls and global prices head lower, the chairman of the Indonesian Feed Mill Association said on Friday, up from an earlier forecast of more than two million tonnes.

 

A senior industry analyst said Beijing had set aside funds to buy between nine million and 10 million tonnes overseas to refill state reserves, which have been falling to their lowest levels in years after sales over the past two years.

 

"China should take this opportunity to buy corn as the possibility of drought and early frost in its major corn area later this year may push up prices," experts said.

 

One trader with a state-owned trading house said Sinograin bought 1.6 million tonnes on Wednesday, but gave no details of price and shipment.

 

But traders said the government purchases, which come tax-free, were made around US$330 a tonne, including cost and freight.

 

The latest purchase was in addition to one million tonnes bought by Sinograin in March, which was used to refill state reserves.

 

China turned corn importer last year, buying 1.57 million tonnes, the most in 15 years, and almost all came from the US.

 

The country is also seeking other origins and developing new sources of supply. In April, Argentina's deputy agriculture minister said his country hoped to work out a health protocol and export up to two million tonnes of corn to China this year.

 

China is expected to import up to five million tonnes of corn in 2011, the US Grains Council (USGC) said last week.

 

USGC President Thomas Dorr said China had already bought around 1.25 million tonnes of corn this year and was expected to meet the bulk of its 2011 import needs from the coming 2011-12 new crop.