March 11, 2009

The Chinese government's stockpiling of corn has led to an increase in raw material prices in the northeast, where processors of China Agri-Industries Holdings Ltd are based and their profits had taken a hit, according to a senior executive of the company Tuesday (Mar 10).

China Agri-Industries executive director Yue Guojun said Beijing's agreement to buy 40 million tonnes of corn in the northeast provinces at higher-than-market prices has boosted prices in the northeast above other regions.

China Agri-Industries, the country's largest grain processor, uses about 5 million tonnes of corn yearly to manufacture products ranging from starch sweetener to ethanol.

About 50 million tonnes of corn are processed by China's corn industries annually, accounting for about 30 percent of the country's corn harvest last year, which was estimated at 163 million tonnes, Yue said.

He added that the government's purchases have triggered substandard alcohol and starch mills to resume operations in places such as Shandong where cheaper corn prices are available. Shandong is home to China's largest starch producer.

Beijing has been buying crops to shore up farmers' incomes, which are under pressure from a drop in demand after five years of bumper harvests.

Yue said Beijing's stockpiling had made Sinograin, the state grain buying agency, to be the lone player in the market, as most of the trade firms were unwilling to buy corn from farmers at a small price advantage to ship the corn to consumers in the south.

He also said demand for corn starch this year, after enjoying an annual average growth rate of 15 percent for the past 8 years, will be weaker due to lower production in paper and textile mills.

The outbreaks of bird flu in January have also reduced corn usage in feed production, as reflected in lower prices of dried distiller grains with solubles, a co-product from its ethanol plants, said Yue.