September 28, 2009

 

China's corn self-sufficiency in doubt

 

 

China's self-sufficiency in corn is in doubt as a drought threatens the harvest and the government's stockpiles are too far away from the market.

 

The drought could cut China's corn harvest as much as 10 percent, and any purchases from the economic powerhouse could ignite the CBOT market which has declined nearly 30 percent since June on expectation of a large US crop.

 

China is not short of corn, but prices in the south have jumped by US$30 per tonne above US corn last week, opening the question of US imports for the first time in three years.

 

Li Ming, general manager of COFCO Agri-Trading & Logistics, said there is no need for corn imports for a decade, but world prices would shoot sky high if China does imports corn.

 

Liu Yonghao, chairman of New Hope Group, a large animal feed and pig producer in China, said his company was watching US corn and could import if the price was favourable.

 

Xiwang Group, a top Chinese corn processor, is also setting its sights on foreign corn because of surging prices, according to a company official.

 

Some companies face problems in getting sufficient corn supply, as although the government holds a large amount of stocks, logistics are huge issues, said an executive at a major feed mill.

 

State stockpiling agency Sinograin bought up 35.4 million tonnes of corn last year to protect farm incomes, exhausting supplies in the northeast and leaving buyers to rely on southern corn areas.

 

But those supplies are now depleted and southern buyers want to buy corn from government warehouses that are 2,500 km away instead of buying from trading houses as before. This shift in trading model has doubled or tripled the delivery, said Feng Jilong, deputy general manager at Jilin Grain Group.

 

Corn from the north faces more than a month of bottlenecks on the congested railways, a problem worsened by the government's decision to move 6.5 million tonnes south at the same time.

 

But imports could only come with the government's permission, as annual import quotas would expire by the end of September.

 

There is another problem – US corn is GM and tightly restricted in China. At best, that means more paperwork, but at worst the shipments could be held up indefinitely for safety checks.

 

Xiwang has applied for a permit to import GM corn, but the government may resist pressure for imports because of its large stockpiles.

 

China's corn harvest is also due next month, and the country is expected to collect about 150 million tonnes, a 10-percent drop from year-ago levels, said an analyst at China National Grains and Oil Information Centre (CNGOIC).

 

CNGOIC estimates demand for the new harvest at 148 million tonnes, up four million tonnes on-year, leaving little supplies and a risk of a deficit if demand picks up or the crop is small.

 

China's corn demand has swelled thanks to a growing meat demand among migrant farmers and other beneficiaries of China's $585 billion stimulus plan. Feed mills, which were hit hard in the first half of the year, have seen demand recovering as pig and poultry breeders returned to profit.

 

Government reserves should cover any gap, although Sinograin has already sold 17 million tonnes this year. Assuming weekly sales until early November, its northeastern warehouses would still hold five to seven million tonnes at harvest time, Feng said.

 

There could be a reassessment next year when the government has a clearer picture about the decline in China's production and where demand stands, said a feed executive.