July 20, 2012

Chinese companies in talks to sell back US corn cargoes

As China seeks to profit from record high prices, some Chinese animal feed manufacturers are in talks with international trading firms to sell back four to five US corn cargoes for shipment in 2012-13.

Front-month corn prices in the US scaled a record high of US$8.04 a bushel on Thursday (July 19), as weather maps showed no sign of an end to a drought that has damaged US crops and provoked concern about food supplies.

The rapid jump in prices has led at least a few Chinese buyers, who had booked shipments at much lower prices, to seize the opportunity of a quick profit by selling the cargoes back to the suppliers at a higher rate.

"We are still talking about washing out the cargoes. It is good for both sides. Buyers booked the cargoes at a price of below US$6 per bushel while current US corn has already risen much higher," said one of the sources, who declined to be identified, as he was not authorised to speak to the media.

"The cargoes are all for 2012-13 shipment. We don't expect domestic corn supply to be tight next year, at least not as tight as that in the US," said the source.

US crops have withered in the country's worst drought since 1956, and updated weather maps showed more crop-damaging weather in the US Midwest, on which the drought is centred.

"Buyers and suppliers are still negotiating over an agreed price to sell back the cargoes. Maybe some cargoes have already been agreed. Suppliers are willing to accept this as they can sell anyway in their own market," said a second trade source.

"There are fewer supply concerns in China since feed mills have been using cheap wheat to substitute for corn."

Both sources said only private feed mills had sold back cargoes. Lower US corn prices in the first half of the year had prompted China, particularly its private feed mills, to step up imports. The latest buying spree by China was in May, when it bought eight cargoes, after booking about three million tonnes in late April.