August 16, 2010

China cuts corn sale on depleting reserves

China, the second-biggest corn consumer, reduced the quantity offered in stockpile auctions in top producing areas by more than half, boosting speculation inventories are dwindling.

The government will sell 400,000 tonnes on August 17 in four top growing provinces, down from the one million tonnes offered in each of the past two weeks, according to the National Grain & Oil Trade Centre.

Corn prices have climbed to records in the country's main markets as supply lagged behind demand. The government has sold 11.7 million tonnes in weekly auctions since April. The sales have not curbed prices significantly and traders speculate state inventories are falling, analyst said.

"The government may be phasing out these auctions because it has to maintain a certain level of stockpiles and can't completely deplete them," said Ding Ling of Shanghai JC. "It's reasonable to let prices rise at this time of the year when the new crop isn't available yet," he added.

The auctions have usually included about 500,000 tonnes offered in central and southern China under the so-called inter-province stock transfer programme. On August 17, this quantity increases to 600,000 tonnes, according to the grain centre.

A rally in Chicago futures has made importing US corn less profitable, and the lack of immediate good-quality material means China probably will not make any more purchases until the new crop is available, Ding said.

Beijing has been releasing corn reserves since April to cool domestic prices, which hit the highest level in the northeast, the country's major corn areas, partly due to lower output last year.

China's corn harvest, due in October, is likely to increase from last year's drought-hit output, but early frost could still threaten the crop.