August 5, 2010

China's corn auction sales slow amid tougher rules

China sold less corn from its weekly auction after the government toughened measures to curb purchases as stockpiles declined, analysts said.

Feed mills bought 67% of the grain offered at auction of state reserves Tuesday (Aug 3), down from 83% last week, government data showed. Mills are allowed to buy no more than a month of requirements from these auctions as of Tuesday. There were no purchase restrictions in previous rules.

Corn on the Dalian Commodity Exchange surged 21% in the past year after drought cut the 2009 harvest. China has offered about one million tonnes of reserves each week since April in the major northeast producing provinces to cool prices, and allowed the most imports since the 1990s.

The government has been forced to take administrative measures to restrict bidding and buy time before this year's domestic fall harvest, according to analysts.

"At the current pace of selling, the stockpiles will not last too long and authorities may have to allow more imports to meet demand or to replenish warehouses," said Ding Ling at Shanghai JC Intelligence Co Ding.

China has ordered 1.2 million tonnes of US corn this year as of July 22, data by the USDA showed. Growing demand for meat and dairy has spurred livestock production, expanding imports of raw materials used in feed including soy and corn.

At Tuesday's auctions in the provinces of Heilongjiang, Jilin, Liaoning and Inner Mongolia, 667,800 tonnes of corn were sold out of one million tonnes offered, at an average price of RMB1,671 (US$247) a tonne, the first decline since June 22, according to the state-owned National Grain & Oil Trade Centre.

Accumulated purchases by mills since May 18 cannot exceed three months of requirements, according to the new rules.

The country will sustain its crackdown on hoarding and price-rigging and try to maintain a stable market, the National Development and Reform Commission said July 30. China is allowing more imports to curb "excessive and fast" gains in corn prices, it added.