October 29, 2003

 

 

Corn Export Offers From China Dry Up With Lower Output

 

As China faces lower output in grains this year, offers of corn for export have almost dried up, while rumors of increased Chinese import activities for wheat abound, trade participants said Wednesday.

 

The wheat import rumors and uncertainty surrounding China's corn export program have contributed to recent volatility in U.S. futures markets.

 

"There are no offers. Everyone has stopped offering until they get more information on China's export policy" for corn, said a senior corn trader at a global firm in Beijing.

 

China's corn exports in 2002 rose sharply by 95% on year to 11.7 million metric tons, helped in part by a financial support scheme from the central government. However, since output this year is expected to fall to 114 million tons from 121.3 million tons in the previous year, according to Chinese state estimates, the market has been widely expecting a cut in the financial support value.

 

China's two authorized corn exporters - China National Cereals, Oils & Foodstuffs Import & Export Corp. and the Jilin Grain Group Co. - have stopped offering corn for shipment next year, said traders. Officials from Cofco and JGG couldn't be immediately reached for comment.

 

Trading houses are still able to sell cargoes, but offers are scant and high.

 

"I got an offer for US$150," free on board, for January-February 2004 shipment, said a feed company official from South Korea, China's largest corn export market. This translates to a landed cost around US$162/ton. The cost- and-freight price is 40% higher from offers around US$115/ton, C&F, the same time last year.

 

Just Monday, Chinese offers were at least US$130/ton, FOB.

 

A foreign grain market analyst in Beijing said Chinese prices are high as some trading houses are probably offering optional-origin corn instead of just Chinese corn, in light of the current supply situation in China and uncertainty surrounding China's export plans for next year.

 

The trader in Beijing agreed, saying it "definitely lowers the risk for suppliers to offer optional origin."

 

Still, Chinese corn prices are cheaper than U.S. feed corn's landed price in South Korea or Taiwan, at close to US$170/ton Wednesday, said traders.

 

Rumors Of China's Wheat Imports Still Rumors

 

China's wheat production is estimated to be 86 million tons in the June 2003 to May 2004 marketing year, down 5% from 90.29 million tons produced in 2002-03, the fourth straight year of decline.

 

Participants said China has demand for high-quality foreign wheat of high- protein or low-protein content, which it doesn't produce enough of domestically. Domestically grown Chinese wheat is mainly of the medium-protein variety.

 

But participants added they couldn't confirm recent rumors of China's aggressive wheat imports.

 

"Whether we import (wheat or not) will depend on the demand of domestic users. At the moment, we still have large wheat stocks and state reserves," said a Beijing-based official from Cofco, the only authorized wheat exporter in China.

 

The Cofco official declined to comment on the rumors of China's wheat imports. He also declined to comment on traders' estimates of China's current wheat reserves around 50 million to 100 million tons, including farmers' stocks.

 

"If indeed China bought 3 million tons, as one rumor suggested, the market wouldn't be at this level. It would be much, much higher. That means it's just a rumor," said a senior trader in Singapore.

 

Although demand for high-quality wheat is growing in China, in response to improved living standards, that market is still small, traders said.

 

Current international prices of U.S., Australian or Canadian wheat are also still much higher than Chinese normal-grade wheat, around 1,300 yuan ($1=CNY8.28) or higher in Shandong province.

 

However, others said the rumors could very well be fact, although this won't be known until wheat vessels actually arrive in China.

 

"Domestic Chinese wheat prices are rising. China could be importing in anticipation of higher domestic prices," said the foreign analyst in Beijing.

 

In 2002, China exported 687,618 tons of wheat, up 51% on year, and imported 604,572 tons, down 12% on year, according to Chinese customs data.