July 30, 2007

 

China's corn supply building up as demand cools, soy prices remain high

 

 

Although China's corn prices remained high, signs that government controls on the corn processing sector are working may be showing.

 

Even as China's corn free-on-board price at Dalian port rose by 16 percent last week, experts are saying that government controls and lower feedmeal demand due to pig diseases may be putting a dampener on corn prices, according to Dow Jones news.

 

China's corn supply is estimated to have risen 4.4 percent in the 2006-07 crop year ending in September, exceeding estimated consumption growth of 2.6 percent during the same period, Wang Xiaohui, head of the China National Grain and Oils Information Center's market monitoring department, said in a research note.

 

Meanwhile, corn demand from the feedmeal sector is expected to fall by 500,000 tonnes, a drop in the bucket compared to overall consumption of 94 million tonnes.

 

However, this has to take into account the fact that China's corn demand has not shown a decline for the past five years, Wang said.

 

China, which is shifting its grain-based biofuels strategy to non grain-based biofuels, has also been limiting industrial uses of corn since late last year due to "grain security" concerns. China is also converting major corn processing plants to use other raw ingredients.

 

Corn demand may not actually rise since industrial demand for corn in northern Hebei, Inner Mongolia and Shanxi provinces can be fully met with existing stocks even before the next harvest in September, said Si Zhibo, sales manager at a state grain warehouse.

 

Given the situation, a steep fall in corn prices may not be that surprising before the next harvest in September, analysts said.

 

Despite the weak feedmeal demand, however, soymeal prices are unlikely to fall as the cost of importing soybean continues to be high.

 

Imported soybean accounts for about 60 percent of total soy crushed in China.

 

However, rising soymeal stocks and limited demand have forced many processing plants to reduce or even stop crushing, reducing the supply of soyoil.

 

As a result, soyoil imports have jumped by almost 50 percent to 1.13 million tons in the first six months, according to data from the General Administration of Customs.

 

Chinese traders have canceled shipments from South America booked in earlier months due to large existing soymeal stocks.

 

Traders expect soy imports to fall further in the coming two to three months.