May 18, 2011

 

China, Argentina corn deal unlikely to hamper US imports 

Argentina's plan to send up to two million tonnes of corn to China by signing a health protocol in the next few months may have little impact on demand for US supplies, Chinese traders said Tuesday (May 17).

 

China, the world's second largest consumer and grower of corn, suddenly became an importer last year as it reached for 1.5 million tonnes of US supplies to fill a gap between a poor harvest in 2009 and fast-growing demand from producers of animal feed and processed corn products.

 

Argentina, the world's second largest corn exporter, has yet to crack the Chinese corn market, although it is already a major supplier of soy and has just announced a big soyoil export deal with China.

 

But traders were dismissive of the idea that Argentine corn would make a big impact on the Chinese market, where two million tonnes is equivalent to around a week's consumption.

 

"It's not like soy, where South American supply can compete with the US and has become a must in terms of imports," said one corn trading executive with a state-owned trading house in China.

 

Argentina produces about 20 million tonnes of corn a year, of which about 12 million tonnes is available for exports, mainly going to its traditional markets in North Africa and the Middle East, said the executive.

 

"Argentina's exports are very small compared to US volumes. But the question is whether China will keep importing corn, like soy, because farmers over there are willing to plant more if there is sustained demand," said a corn analyst at the China National Grain and Oils Information Centre.

 

Argentina's export potential has been in the spotlight this year after supplies of old US corn stocks ran low. Anticipation that stocks could be the tightest since the 1930s pushed Chicago Board of Trade corn prices to a record in April.

 

But China's state reserves are also thought to be low after large stock releases since 2008. Although China has been trying to slow demand and has supplemented supply with weekly sales of feed wheat reserves, totalling about 620,000 tonnes since March, physical corn prices in most areas are at record highs. Demand from livestock breeders and corn processors has remained robust while supplies from farmers have dried up.

 

"We heard there would be 10 million tonnes of shortages at home; mills here are snapping up supplies," said one corn purchase manager with a processor in Shandong province, where prices have risen 6% to RMB2,360 (US$363)/tonne in the past month as supplies from farmers have declined.

 

Corn prices offered at the port of Dalian, the largest corn port, were quoted at RMB2,240 (US$344)/tonne, up 3% from last month.

 

But Argentina's corn supply may not be available in the near future because China still wants reassurances about genetic modifications, which will require a safety certificate from China's Ministry of Agriculture even after the protocol is agreed, the trading executive said, adding that the talks were going to schedule.

 

Even if those hurdles can be overcome, Argentina's corn is not currently competitive with US corn, due to the low volume available and the long shipping distance, he said.

 

The world's No.3 exporter, Brazil, ships its corn to Europe and does not have a significant surplus for China to tap into.

 

The fact that China needs to import corn this year is not in doubt, despite repeated reassurances from government officials that it had no need to.

 

Earlier this month Sinograin, which manages the central government reserves, said it was the mystery buyer of one million tonnes of US corn in a deal struck in March.

 

Sinograin missed an opportunity to replenish state stocks last year and prices have almost doubled since then.

 

Chicago corn prices rose more than 2% this week on fresh talk that China returned to the market after its March import of one million tonnes.

 

Chinese feed mills still find US corn expensive, although Sinograin, exempted from the 13% value-added tax and 1% import tax, would be able to import at prices similar to China's own market.

 

"We may use more wheat to replace corn. US prices are still too high but not for Sinograin, which is not considering costs when it imports," said one manager with a major feed mill in Guangdong.

 

Chinese interest in buying US imports tended to pick up if US prices were around $6.50 per bushel, analysts said, adding that the most traded contract was trading just below $7.00 on Tuesday.

 

Due to tight US corn supplies, China would only be able to import less than three million tonnes this year, though imports in 2011-12 could jump to nine million tonnes, experts added.