October 22, 2012

 

 

New corn prices in China have risen due to active acquisition by traders, feed mills and deep processing enterprises.

 

However, as demand from the downstream industries has not recovered on a large scale, mass supply of the new corn will probably weigh on the market and curb sharp rise of corn prices.

 

Currently, autumn grain reaping in Henan, Shandong and Hebei provinces has almost been completed while Northeast China has harvested half of its corn crop.

 

Corn purchase prices in North China now stay up to CNY2,160 (US$345.10) per tonne while those in northeastern regions are quoted at CNY2,260 (US$361.03) per tonne.

 

Since the new corn hit the market in October, traders and feed plants' purchase prices have held stable while deep processing enterprises have lifted their offered prices for corn.

 

Although corn prices have followed an upward path recently, demand for the crop is not so optimistic.

 

Huang Ting, an analyst with New Era Futures, says that animal breeding industry's profit margin remains at a low level, but its restocking demand is likely to increase before the New Year holiday (January 1) and Spring Festival in February of the next year, and this will help drive up demand for feed corn.

 

The country's live pig stocks recovered both on-year and on-month basis in September.

 

However, deep corn processing industries generally have low operating rate due to small profit margin and even losses in production. At present, the starch industry maintains the operating rate at 65% while alcohol enterprises only use about half of their capacity.

 

"Faltering consumption is likely to cool down deep processing companies' enthusiasm in procurement," notes Huang.

 

Gao Bin, an analyst with Shanghai CIFCO Futures, believes that corn prices are difficult to rise significantly in the short term with no signs of demand recovery as well the coming supply pressure.

 

Besides, the relatively loose supply/demand fundamental will not support corn prices to rebound persistently. The latest forecast report released by the state-backed think-tank, China National Grain and Oils Information, raised the country's corn output this year by four million tonnes to 201 million tonnes, but in the meantime reduced estimate for demand by three million tonnes.