November 3, 2010

China's new corn supply remains tight

Despite the start of the marketing season for new yield, corn prices in China are likely to continue climbing amid tight supplies, led by later-than-usual harvests and farmers' unwillingness to sell.

Affected by unfavourable weather conditions, the corn harvest in north China's major producing areas was five to 10 days later than usual. Meanwhile, farmers are holding onto the new corn on anticipation of higher prices.

In a bid to secure supplies, some merchants have turned to old corn. But due to reduced output last year, the amount of old corn is limited.

Market data show the spot prices of both old and new corn have picked up in the past week.

It is worthy noting that corn processors in northeast China are competing heatedly for corn as surging sugar prices have driven up demand for corn starch. Some of them took the initiative to offer prices of RMB30-50 (US$4.49-7.49)/tonne higher than the market average.

In order to ease the tight supplies on the market, the Chinese government offered 1.8 million tonnes of reserve corn for sale in its weekly auction on Tuesday (Nov 2). The amount was 200,000 tonnes higher than last week.

Some 535,500 tonnes or 53.93% of the offered corn was sold, with an average hammer price of RMB1,955 (US$293)/tonne.

Despite the rally in corn prices, market observes warned of risks in the corn market in the short term. The surge of agricultural product prices has triggered further concerns over inflation and may prompt the government to take regulatory measures, they said, adding that corn supplies may increase in November.