October 7, 2010

China may have larger-than-expected corn demand

China's voracious appetite for corn may be higher than originally thought as the Asian giant builds up stocks in a bid to ensure security of food supply, experts said Wednesday (Oct 6).

Reports that China's crop may not reach the record levels hoped, forcing it to rely on imports from the US and Argentina, have boosted prices to highs of over $5 a bushel in Chicago in recent weeks.

Despite US Department of Agriculture figures pegging China's corn stocks at record levels this year, a surge in grain imports in recent weeks has created skepticism in the market.

China's corn imports in the first eight months reached 714,041 tonnes, according to government figures. But observers say actual exports could easily exceed one million tonnes and analysts predict they could reach between three million and five million tonnes this year if the country suffers a poor harvest.

"That's a fairly large amount of corn the US doesn't necessarily have," said Alex Bos, a commodities analyst.

Estimates for the size of China's corn harvest also vary widely. While the USDA has so far predicted a 7% on-year growth in production to 166 million tonnes, the US Grains Council expects only a small increase of 2% to 158 million tonnes after its recent tour of the growing areas.

China's government has already released 15 million tonnes of corn from the country's stocks but growing meat demand from the country's rapidly-expanding wealthy middle class may force the country to up its corn purchases even more as the government negotiates politically sensitive fears around food security.

"Politically they see the need to have bigger strategic stocks to help manage internal inflation," said Steve Jesse, director of Barclays Capital. "We might be underestimating consumption in China."