July 22, 2009

Buyers have responded cautiously to China's attempts to sell two million tonnes of corn from its state reserves as the market already has ample supplies, traders said.

According to the industry website www.cngrain.com, Heilongjiang province sold only 13 percent of its total quota in Tuesday's (Jul 21) morning trade while neighbouring Jilin received bids for just 22 percent.

A total of 400,000 tonnes of corn was up for bids in Heilongjiang on Tuesday morning and it later closed with sales of just 53,200 tonnes. Meanwhile, prices were in the range of RMB1,490 to RMB1,540 per tonne.

In Jilin, 174,440 tonnes of corn were sold out of a total 801,600 tonnes on offer, with prices ranging from RMB1,530 to RMB1,600.

On the other hand, the auction was more successful in Inner Mongolia as 240,000 tonnes out of a total 300,340 tonnes of corn on offer were sold at an average price of RMB1,623. Over in Liaoning, the province sold 252,200 tonnes, 56 percent of the total on offer.

China's attempt to sell some of its reserves is part of efforts to fight steadily increasing prices in major agricultural regions like Heilongjiang, Shandong and Henan.

However, China remains anxious to prevent a price slump that could discourage farmers during the planting season. Therefore, the government settled on what most analysts believe is a cautious, market-testing move. If this decision proves successful, it could lead to a bigger sell-off as the country looks for space in its reserves before the September harvest.

Analysts also said this week's auctions, which include 500,000 tonnes of soy planned to go on sale on Thursday (Jul 23), are an attempt to relieve local shortages caused by harsh weather.

Currently, China's total state corn inventories are estimated at around 40 million tonnes.

Analysts expect the auctions to continue every Tuesday until the next harvest.

US$1=RMB6.832 (Jul 22)