August 18, 2010

China faces risk of low corn stockpiles

Corn reserves in China are down sharply compared with last year, making it more difficult for the government to control corn prices, a senior grain industry executive said.

"Although China's grain reserves are sufficient, its corn reserves have declined by a wide margin compared with last year," said Zheng Chunfeng, chief executive of Dalian Northern Grains Exchange Market Co.

Harsh weather conditions have cut into China's food security, a top priority for Beijing, triggering unprecedented levels of US corn imports this year and threatening to break the country's six-year streak of record-level consecutive harvests.

While Zheng did not specify percentages, he said that all of China's corn reserves stored in 2008 have been sold and that the country's corn reserves were currently "insufficient."

"This will certainly increase the difficulty the country faces in managing the corn market," he said.

China's corn consumption is rising by three to five million tonnes a year, outpacing supply, he added.

The government has sharply reduced the amount of corn sold at a regular auction in Anhui province to 400,000 tonnes, down from the one million tonnes it used to offer. Meanwhile, it also published stricter auction rules on bidders' qualification and maximum amount of purchase.

These moves are likely to fuel anticipation for tight supply in future, market observers said.