September 10, 2009

China's official grain think-tank has cut its corn output forecast by 0.3 percent from last year's harvest to 165.5 million tonnes due to the severe drought in the country's corn-growing northeast region.

 

The estimate by the official China National Grain and Oils Information Centre (CNGOIC) was more optimistic than a drop of 10 percent expected by other analysts.

 

In a bid to control prices fuelled by worries of drought damage, China has increased the weekly corn sales from its reserves to nearly three million tonnes. The government's temporary reserves of about 36 million tonnes will ensure sufficient supplies for this year at least.

 

Despite lower US corn prices, feed mills and processors are unlikely to import corn in the coming months as they fear the government may interrupt shipment of genetically modified corn, especially with China aiming to support its own farmers, industry officials said.

 

A survey by a consulting firm showed that August's long drought coincided with the crucial corn-filling stage and it could trim output this year in Jilin and Heilongjiang, China's top two producing regions, by 30 percent compared to last year. Meanwhile, the shortfall in Liaoning from last year could be 40 percent while corn output in Inner Mongolia could drop 20 percent.

 

The northeastern provinces of Jilin, Heilongjiang, Liaoning and Inner Mongolia produce about 40 percent of China's corn output.

 

Supplies are expected to be tightened after next May as some areas in the south could face shortfalls and it could prompt a rise in imports, said Li Qiang, chief analyst with private consultant Shanghai JC Intelligence Co Ltd.

 

The company estimated that corn consumption would rise between six and eight percent, largely for feed usage, with demand expected to exceed a harvest estimated at 145 million tonnes, much lower than CNGOIC's estimate, according to Li.

 

Meanwhile, the centre also lowered the soy output forecast to 14.5 million tonnes, an on-year decline of 6.7 percent.

 

Industry officials who had surveyed the soy crops in Heilongjiang province, China's largest soy producing area, said damage caused by the drought was minor while damage due to rain and low temperatures in May and June was more serious. Farmers also grew less soy crop this year.

 

In addition, parts of Heilongjiang were hit by early frost over the weekend, which could further reduce output.

 

Analysts have predicted China's soy imports next year will surpass this year's record of 41 million tonnes, partly due to a recovery of feed demand for soymeal from the breeding industry.

 

On the other hand, the centre has revised down China's total wheat output to 114.95 million tonnes but that is still 2.2 percent higher than last year's output.