October 21, 2010

 

China likely to see corn supply deficit in 2011

 

 

China, the world's second largest corn consumer, is likely to see a supply deficit of as large as seven million tonnes in 2011, according to a leading industry analyst who has sharply cut his estimate of the coming year's harvest.

 

The analyst said he expected China's corn consumption to grow to 160 million tonnes in 2010-11 (Oct-Sep), up from 155 million tonnes in 2009-10, while production would only reach 153 million tonnes.

 

That is a downward revision of 5.7 million tonnes, since the previously forecasted production was at 158.7 million tonnes.

 

The analyst attributed the lower forecast to early frost in the northeast of China, which may reduce the harvest in the main corn-growing region of the country.

 

The shortfall in corn supply would be largely met through imports, which is expected to reach 5.8 million tonnes in 2010-11. Chinese feed mills would also use more wheat instead of corn to cover the remainder.

 

Record domestic corn prices have contributed to the country's overall inflation, hitting a 23-month high in September. Together with Beijing's low state stocks, this has led to expectations that China may need to import more US corn.

 

US corn futures surged 5% on Wednesday, supported by market talk that China was seeking to buy US corn. The prices were nearly 20% higher than physical prices, according to calculations by some traders.

 

The forecasts imply China will allow a big expansion of trade, having already allowed the biggest volume of corn shipments into China for 15 years, with 1.3 million tonnes arriving in 2009-10.

 

Traders say China's own state stocks of corn are too low to tame price rises, which may have been an additional factor in Beijing's surprise interest rate hike earlier this week.

 

"We do not think US prices are an issue. If there is a supply problem, it makes no sense to worry about prices," said one trading manager with an international trading house, adding that US corn would be attractive if the Chinese government were to lift the 13% value-added tax to encourage imports.

 

China's own harvest is under way, but continuous corn price increases have led many farmers to hoard their crop after harvesting.

 

Analysts' output forecast figures are lower than the official grain think tank, the China National Grain and Oils Information Centre (CNGOIC), which put China's corn harvest at a record 169 million tonnes.

 

CNGOIC analysts expect China's corn demand and supply to be basically balanced next year.