August 14, 2012

China to open corn, rice reserves due to inflation, declining imports

China will open national reserves for corn and rice to cope with inflation and declining imports as the current US drought causes rising corn prices at record levels, sparking off fears of a world food crisis.

The announcement was the first release since September last year, when China said it would sell 3.7 million tonnes of state corn to keep inflation under control.

The release may take some pressure off international corn prices, which set an all-time high on August 10 as the US government slashed its estimate of the crop size of the world's top grain exporter.

"Bottom line: rationing is in full force, and given the continually declining state of the US [corn] crop, more will be needed," said Christopher Narayanan, the head of agricultural commodities research at Societe Generale.

China's state administration of grain did not specify the volume of corn or rice to be released from reserves.

Some traders estimated the government might sell about two million tonnes to help stabilise prices ahead of the harvest, when supply is usually tight.

"It can help stabilise the market somewhat, but the volume is too small compared with the 10 million to 15 million tonnes of monthly consumption nationwide," said Xu Wenjie, an analyst with Zheshang Futures.

Domestic corn futures on the Dalian Commodity Exchange have risen 12% this year to about CNY2 400 (US$377) on August 10.

China, once self-sufficient in corn, has become a major importer in recent years as incomes rise for the growing population and people begin to consume more meat.