July 22, 2009

China's corn sales Tuesday (July 21) acted as a stabilizer to spot prices as the auctions set a price bottom for cash trading amid ample government supply, said analysts.

 

The government sold 745,900 tonnes of its reserve corn in the northeast major producing areas, or 37 percent of the 2.01 million tonnes it planned to sell.

 

The average auction price was RMB1,600/tonne, with prices ranging from RMB1,490-RMB1,690/tonne, similar to local cash prices.

 

However, corn prices in the northeast were slightly higher since the announcement of the sales last Thursday, as supply remains tight and auction prices set the tone for cash prices.

 

The benchmark auction price for corn was set at RMB1,550/tonne, around the same level as corn prices in the northeast, which mostly ranged from RMB1,500-RMB1,550/tonne.

 

Analysts said the auction prices acted as a guide for the cash prices, which have been rising in recent weeks due to tight supply.

 

"It showed the government is (happy) with current prices and wants to keep (them) stable at the current level. Otherwise, it will sell the corn at lower prices," said Wang Cheng, an analyst with Nanhua Futures Co.

 

The government bought around 35 million tonnes of corn from the country's 2008 harvest, about 20 percent of the crop's output last year.

 

Analysts expect the government to continue corn sales in the coming weeks, with the volume to be sold around 2 million tonnes a week.

 

But traders and processors weren't t actively buying the crop during the auction, indicating weak demand.

 

"They are reluctant to push the prices much higher," so prices are unlikely to move up rapidly, said an analyst with Chicorn Network, adding processors can only make small profits with such prices.