September 21, 2007

 

Inflation fears spur China to open the door to more corn and soy imports 

 

 

China's top planning body has announced it would encourage corn imports as a means to curb rising inflation while sources say duties on soy imports may be cut soon to stem rising prices.

 

China's National Development and Reform Commission (NDRC) said on Thursday (Sep 20)  the government would put a priority on covering corn demand from the feed industry while placing controls on the growth of the corn processing industry.

 

As China is unlikely to see a big rise in production of the grain, supply will be in tight balance with demand, the NDRC said, adding that a proper amount of imports will be encouraged to meet domestic demand."

 

Over the past five years, China's corn processing industry has seen massive expansion, helped by Beijing's policy to promote the sector.

 

But high corn prices pushed up meat prices to a record high this year, propelling the country's inflation to a decade high in August.

 

The commission said domestic corn consumption would grow 14.3 percent by 2010 from 2006, triple the output growth of 3.5.

 

China produced a record 145 million tonnes of corn last year.

 

China plans to cap corn consumption by the processing industry, such as corn sweetener producers or ethanol makers, within 26 percent of the total corn consumption until 2010.

 

This year, the corn processing industry is expected to consume 31.5 million tonnes of corn, accounting for 23 percent of total corn consumption.

 

The commission said it would restrict foreign investors in corn deep processing projects, with products ranging from corn sweetener to lysine, and the government would change taxes to control exports of these products.

 

Beijing would also not allow foreign investment in fuel ethanol projects, or the acquisition or restructuring of current domestic ethanol producers.

 

China now has four government-sponsored fuel ethanol plants which use mainly corn as feedstock.

 

The NDRC also urged local governments to cut corn exports to secure domestic supply.

 

So far, the government has not issued the second batch of export quotas for corn after handing out quotas for about 1.4 million tonnes in April. Initially, it was expected to allow corn exports of about 3 million tonnes this year.

 

Traders in the US said US corn exports stand to benefit if China curbs its exports or imports the grain to contain food inflation, but high prices would likely deter imports by China this year.

 

Chinese corn costs roughly about US$200 per tonne, while international corn would cost well over US$300 per tonne delivered.

 

Imports are up in the air as supplies are tightening but is adequate to meet their needs, analysts said.

 

However, the main impact for China would be reduced imports.

 

China has often been the world's third-largest corn exporter, after the US and Argentina.

 

China has increased its corn exports by 81.7 percent this calendar year to 4.2 million tonnes of corn -- mostly in the early part of the year. However, it exported only 230,000 tonnes in August and 250,000 tonnes in July.

 

The lack of Chinese corn available for export in recent months has helped fuel demand for US corn. US corn sales last week topped 2 million tonnes and have exceeded 1 million tonnes a week for the last seven weeks.

 

News of China encouraging imports sent corn futures at the Chicago Board of Trade higher on Thursday.

 

Meanwhile, China is also considering cutting the duty on soy imports from  3 percent to 1 percent to encourage imports and east inflation.

 

Chinese domestic soymeal, soy and soyoil prices have risen sharply ahead of the October National Day holidays.

 

Together with soaring pig meat prices this has added to upward pressure on consumer prices that in August hit their highest in more than a decade.

 

However, Chinese soy importers are hesitating to import more soybeans as costs for imports have risen even faster than domestic prices, due to high international oilseed prices and record freight rates for dry-bulk cargoes.

 

The State Council, the cabinet, met on Wednesday to discuss measures to boost domestic soybean production and set up soybean and soyoil reserve systems.