February 27, 2012

 

China's demand for US corn may further increase 

 

 

China's first major buying of US corn in four months may be a sign of more deals as the country's soaring prices in the southern region make US imports a better move for the budget, analysts and traders said.

 

The USDA on Thursday (Feb 23) said China bought of 120,000 tonnes of US corn. The grain will be from last year's harvest, supplies of which already are rapidly shrinking and forecast to reach a 16-year low before the next harvest this fall.

 

That is the largest one-day purchase by the world's second largest consumer of the grain since early October.

 

The sale comes a week after a Chinese trade delegation to the US, that included Chinese Vice President Xi Jinping, signed deals to buy a record 13.4 million tonnes of US soy, or US$6.7 billion worth.

 

In early October, the USDA confirmed a sale of 900,000 tonnes of US corn to China after days of widespread rumours. This time around, the sale came as a surprise.

 

Until 2009, China was historically a net corn exporter, rising to No. 2 on the global stage at one point.

 

The latest sale will likely be shipped to southern China, where domestic prices have climbed to a more-than-US$60 premium to imported corn due to tight local supplies, analysts said.

 

"With low shipping rates right now they're likely just securing a little bit more feed grain for reserves if it's the government or to hang on to it at ports like they do with beans," said Terry Reilly, analyst with Citigroup.

 

"China's compound feed production is running at a fairly high level. They're just trying to keep up with that, importing cheaper US supplies into the South instead of dealing with transportation from the North," he said.

 

When China made the October purchase, imported prices there were around US$320 per tonne, cost-and-freight, versus domestic prices of around US$400 per tonne.