September 19, 2008

China could increase state purchases of corn and stockpile reserves from a bumper harvest to strengthen the management of prices of feed wheat amid low stocks.

If the government can keep wheat prices lower than corn prices next year, as it has this year, many feed mills will favour wheat and damp down demand for corn, said Feng Jilong, vice president of Jilin Grain Group, once China's largest corn exporter.

After this year's bumper harvest, the government might be able to draw on wheat stocks of up to 80 million tonnes.

The state's presence would also grow in the corn sector this year, he said, as Sinograin, which manages the central government grain reserves, could buy more than 10 million tonnes of corn from farmers, up from the 6.7 million tonnes it bought last year.

Sinograin has sold more than 4 million tonnes from its earlier purchases in a series of auctions this year to feed mills in the south, helping in the government's battle to keep inflation under control.

The sales, with storage fees subsidised by Beijing, were at lower prices than trading firms were offering, he said.

The sales have kept domestic market insulated from the pressure of soaring international prices. US CBOT corn prices hit a record high in the first half of the year.

China was expected to have a record corn harvest of about 158 million tonnes this year but it may still be affected by early frost forecast at end of the month, said Feng.