August 18, 2011

China in July ordered a higher-than-expected 21 million bushels (533,000 tonnes) of US corn, a sign that the country is struggling to meet rising demands of its middle class amid internal shortages.

The purchase surprised the market and came as an intense July heat wave was shrinking the potential size of the Midwest crop. China bought another 2.2 million bushels of US corn early this month.

Corn prices, which have nearly doubled over the past year, climbed another 1% Tuesday (Aug 16). The corn futures contract for December delivery at the Chicago Board of Trade rose 7.5 cents to settle at US$7.275 a bushel.

Many attribute the larger-than-expected demand to a growing middle class that is changing its tastes more quickly than anticipated. As the Chinese population becomes wealthier, for example, it is eating more pork. And the Chinese government is pushing its farmers to adopt Western methods of raising their pigs, including feeding them more corn. Citizens also are slurping up juices and other products that include corn-based sweeteners.

This year, China is expected to use about five billion bushels of corn to make feed, a growth of 20% from five years ago, according to the USDA.

The deparment now forecasts that China will import 79 million bushels of corn from all sources for the 2011-2012 crop year. But some grain traders think China wants to buy 200 million bushels of corn from the US alone.

US companies are already investing with China's ever-expanding appetite in mind. Grain exporter Archer-Daniels-Midland Co said in July that it would build a shuttle-loading grain elevator near St. Cloud, Minnesota, with the capability of loading trains that are 110 cars long. And Minneapolis-commodity processing giant Cargill Inc is expanding its corn sweetener factory in Pinghu.

Grain giant Bunge and two Asian partners invested US$200 million to build a port terminal in Longview, Washington, which is scheduled to open this fall and is the nation's first in at least two decades for loading ocean-going ships with grain.

Biotechnology giant Monsanto Co has had talks about deepening ties with Sinochem, the state-owned chemicals conglomerate with which it has had a corn seed-breeding venture in China since 2001.

However, for now, the amount of Chinese business confirmed by Washington is relatively small alongside America's total foreign sales. The US exports about 1.8 billion bushels of corn globally.