December 8, 2010

China sells 10% of corn reserves at auction

China sold only 10% of state corn offered at weekly auctions on Tuesday (Dec 7) as domestic physical prices have been falling amid Beijing's crackdown on corn processors and speculation on corn prices.

The government sold 196,500 tonnes out of 1.8 million tonnes offered at the auction, of which only 15,100 tonnes were sold in the northeast, the country's major corn areas.

The average price at Tuesday's auction was RMB1,645 (US$247)/tonne, sharply lower than RMB1,883 (US$283)/tonne last week.

Beijing only allows about 92 large feed mills to bid for state reserves to ensure demand from animal feed production. The government also launched a crackdown on corn processors with outdated facilities.

"The government crackdown has led some processors in Henan and Hebei to stop operations. Farmers have also increased sales of their crops," said one analyst.

The government has vowed to close outdated facilities at corn processors. High profits have helped drive domestic corn prices to records and that has helped drive up the country's food prices.