November 13, 2008
China is considering exporting corn as weak domestic demand and bumper harvest threaten the local market, according to traders on Wednesday (Nov 12, 2008).
China is expected to harvest 156 million tonnes of corn this year, up 2.4 percent on-year, but weak demand could lead to a large inventory. Beijing's plan to purchase 5 million tonnes for state reserves was also seen as too meagre to help.
China is also making moves to encourage exports, given its recent policies including the elimination of grain export taxes effective from next month.
However, traders said relaxing the rules may not be enough to spur exports, as a sharp drop in freight rates has made US corn cheaper for Asian importers, while the Chinese government is trying to support domestic prices by purchasing 5 million tonnes for reserves.
Export is now impossible as domestic prices are much higher than the US corn, even without the export tax, said a trading manager from a state-owned trading house.
The Finance Ministry is also unwilling to offer extra financial support to make up for the price gap, even though top planning body National Development and Reform Commission (NDRC) intends to promote exports.
Domestic corn prices were offered at RMB 1,600 (US$234.3) per tonne in Dalian while US corn was sold for US$208.9 per tonne to a South Korean importer last week.
Traders said the relaxing of rules came too late and now they have to wait for opportunities when freight rates are high enough.
China banned corn exports early in the year, missing the chance to cash in when US corn prices reached a record high of over US$7 per bushel. Even Taiwan, to which China has allowed 200,000 tonnes of corn exports this year, has also turned to US corn, leading to a delay of some Chinese corn shipments contracted earlier.
However, Chinese corn has the advantage of being non genetically modified, a key consideration for many Asian consumers as most US corn are genetically modified.
Non-GMO corn prices became sky high this year due to limited supplies, especially after China left the market. As a result, South Korea has purchased GMO corn for food for the first time this year, and rumours are rife that Japan may soon follow the lead.
The recent melamine scandal could push down domestic prices to a point which exports are possible, but possibility is low before the end of 2008, said a trading manager in Jilin.