September 28, 2010

China's new corn prices seen higher on rising demand 

China is likely to see higher open prices of new corn this year, due to increasing industrial demand and the government's need to replenish stock after massive auctions.

China's livestock breeding industry has noticeably recovered since July, thanks to the government's support. This will continue as demand for meat and eggs increases when the weather gets cooler. As a result, demand for feed will remain robust, providing support for corn prices.

Meanwhile, the industrial consumption of corn is likely to grow steadily as domestic corn processors are seeing better export opportunities amid soaring corn prices in the US.

In a bid to increase supply and suppress rapid price rises, the Chinese government has auctioned corn from the national reserve every week since April. With the landing of new corn on the market, the government is certain to replenish stocks for future use.

Furthermore, farmers in northeast China, a major corn producing area, have changed the habit of selling corn before the spring sowing season and tend to hold on to the new corn for a longer time, as they do not lack money for purchasing seeds for next year's sowing.

Currently, stocked corn prices are still running at a high level and planting costs have increased. A majority of farmers are expecting higher prices for new corn this year. It can be imagined they will not be in a rush to sell.

Since China has opened the grain purchase market to players other than the state-run reserve grain operator the China Grain Reserves Corp., competition among new corn purchasers will be more heated, which may also push up the open prices of new corn.

At present, corn planted in northeast China is growing well, shrugging off the negative impact of low temperatures in early spring and floods in late July. Corn production in the region is expected to recover to last year's level, analysts said.

Corn in north China, and the Yellow and the Huai river basins is faring better than last year due to ample rain, proper soil moisture and fairly high temperatures. If no major natural disaster occurs, output in the region may equal or slightly exceed last year's.