December 30, 2010

China's corn prices stable on policy tightening concerns

Corn prices in major producing areas of China were largely unchanged in the week to Wednesday (Dec 29), and trade was sluggish due to concerns over measures to curb inflation.

Prices in Tieling in Liaoning province were around RMB1,920 (US$290)/tonne, unchanged from a week earlier.

Prices in Harbin, Heilongjiang, were about RMB1,860 (US$290)/tonne, also stable.

Farmers are more reluctant to sell corn stocks with prices sagging as a result of government-imposed price caps and regular releases of government reserves increasing supply, an analyst said.

Meanwhile, concerns over the effect of recent increases in the benchmark interest rate and reserve ratio requirements, as well as bad weather in northeastern China that is hampering transport and increasing costs, also put a brake on corn buying, he added.

"Corn prices will remain stable in the near future," he said, as Beijing is firmly resolved to tame inflation and could implement more tightening measures.
 

Once China Grain Reserves Corp, the biggest grain buyer on behalf of the government, begins purchasing corn, corn prices will start to rise, he added.

The government usually begins purchasing corn in November each year in major producing provinces Heilongjiang, Jilin and Liaoning, but it has yet to begin this year, he said. Government buying of corn could push prices higher and put further pressure on a worsening inflation outlook.

Conversely, the government is releasing corn reserves via auctions to ensure supply to the market.

But only 312 animal breeding and feed manufacturers nationwide are eligible to buy from national corn reserves, according to the auction regulations. Corn starch and ethyl alcohol makers aren't allowed to participate.

In a Tuesday auction, the government sold 216,758 tonnes of corn, or 14% of the volume it offered. The volume sold was higher versus the previous week's auction, when the government sold 12% of a similar volume.