September 11, 2007
China expected to scrap grain export quotas on inflation fears
Traders at authorized grain exporting companies said China has scrapped its plan to issue export quotas ahead of the autumn harvest, which starts in October, despite expectations for a record corn harvest.
Beijing has refrained from issuing expected export quotas for corn and wheat, a move traders said reflected the government's concern that high grain prices are fuelling inflation, already at a 10-year high.
Beijing was previously expected to hand out export quotas of about 3 million tonnes this year after issuing the first batch of about 1.4-1.6 million tonnes in April.
This was especially so since domestic physical corn prices have stabilized following Beijing's efforts to tighten its reins on the booming corn processing industry during the second quarter this year.
Furthermore, China was likely to harvest a record 149 million tonnes of corn this year, a rise of 2.42 percent from 2006, according to the China National Grain and Oils Information Centre.
Still, authorities would do well to be frugal in exports as feed demand is recovering from the lows experienced the past few months.
The same applies for wheat. Officials said Beijing did not give new export quotas to COFCO, the sole exporter of the grain, as many had expected, despite ample domestic stock and record prices.
Industry sources say the droughts and flooding that has occurred in China has sliced surpluses razor-thin and China may even have to turn to imports to satisfy demand.
The popular view was that China was afraid of making the same mistake India did. India had to purchase 800,000 tonnes of wheat last year at inflated prices after authorities misjudged demand. The country used to be a major exporter.
With freight rates at historic highs, wheat from China wheat, often seen as a poorer cousin in relation to US wheat is gaining popularity in Asia.
China's wheat exports have tripled over the past seven months, compared to the same period last year.
