November 30, 2007

China to sell corn reserve as inflation looms

The Chinese government, on its last resort to tame food-led inflation, announced to sell more than 2 million tonnes of corn from state reserves and bring down domestic prices.

Traders said that most of the corn will go to feed mills in the south where farms have stocked up pigs ahead of the Lunar New Year Festival in February and after Beijing's call to raise pork supply.

However, industry sources said that the impact will be short terms as meager harvest and surging demand this year will keep supplies under pressure.

Supplies are also tight since farmers are holding on to their crops while corn trickles down in the market.

China suspended corn exports at a time when global grains stocks are also low and exploding freight rates makes it extra difficult for China to import corn from the US.

The 10 percent hike in corn prices this month was also followed by surges in vegetable oils and pork prices.

Corn prices in the southern province of Guangdong, the country's largest consuming region, jumped more than 20 percent this month to US$284.3 per tonne, due to limited railway transport volume from the northeast.

Another factor tightening supply in some areas is strong demand from the corn processing industry, including ethanol plants.

President Hu Jintao said this week that curbing inflation was one of the country's top priorities next year, as consumer prices escalated 6.5 percent in the 12 months to October.