December 7, 2010

 

China may become regular corn importer

 

 

China is expected to become a fixture in the global corn market after being mostly absent for the past 15 years and this will further tighten world grain inventories.

 

Analysts project China will buy millions of tonnes of corn from the US and Argentina next year, quickening a return to the world market that began in earnest this year.

 

The commodity-hungry Asian country is importing again to meet rising consumer and industrial demand for corn, used to feed livestock and produce biofuels. China faces high cash prices for corn grown domestically, making imports more attractive.

 

"They'll be a regular importer I believe," said Terry Reilly, grains analyst for Citigroup in Chicago.

 

Argentine officials recently said the country will likely complete negotiations to export an undetermined amount of corn to China in the first half of next year. The countries have not yet signed a trade agreement for corn imports into China, according to Chinese officials.

 

Estimating just how much corn China needs to buy is tricky because of uncertainty over the true size of its crop and reserves. Private estimates for imports range from roughly 3-9 million tonnes for the 2010-11 marketing year, which runs through August 31. The USDA so far has estimated China's imports at just one million tonnes for the current marketing year.

 

The US government last month raised its 2010-11 production estimate for China by two million tonnes to 168 million, raising eyebrows because of reports that this year's crop was poor.

 

Analysts project US corn futures could climb 25% to US$7 a bushel if China makes dramatic purchases next year. US corn supplies are already expected to fall to a 15-year low at the end of the marketing year. Argentine sales to China would support US prices because they would tighten global supplies. The US and Argentina are the world's largest and second-largest exporters of corn.

 

Corn futures in November reached a 27-month high on concerns a smaller-than-expected US harvest would not meet strong global demand. Corn reached its all-time high of US$7.65 a bushel in June 2008 due to strong demand and devastating floods in the US.

 

China started importing grain in sizable loads this year after being largely absent from the market since the 1995-96 marketing year. According to Chinese customs data, China imported 1.48 million tonnes of corn in the first 10 months of the year, up from very small levels the previous year. Those imports have consisted of 1.43 million tonnes from the US and six tonnes from Argentina.

 

China reduced its imports in the 1990s as it expanded plantings in a drive to become self sufficient. Eventually, it should be able to increase its production and provide for itself again if the government invests in research to increase yields, US Grains Council President Thomas Dorr said.

 

For now, rising Chinese corn imports are "a new trend," he said. As Chinese buying picks up, Dorr expects demand to flow to the US.

 

Argentina's grain exports have suffered in recent years from poor weather and political turmoil. Argentina and China also will have to reach agreements on acceptable strains of GM corn, but the issue is not expected to be a major barrier. The US and China already have such agreements for many strains.

 

In the coming years, China's corn imports will likely vary anywhere from 5-15 million tonnes a year, with fluctuations depending on how much corn China has in reserve, Reilly of Citigroup said. That would account for about 5%-15% of global corn imports, based on current production levels.