May 27, 2011

China confirms purchase of US corn

The US government confirmed on Thursday (May 26) that exporters had struck deals to sell corn to China, fueling expectations that the Asian nation will be a customer whenever prices for the commodity dip.

The USDA said China bought 116,800 tonnes of corn for delivery before August 31, with the sales coming sometime earlier this spring. Traders suspected the nation had bought corn earlier this month when prices dropped to a six-week low, yet much of the speculation focused on a large volume.

"If prices get back down to that level, they'll have interest," said Shawn McCambridge, senior grains analyst at brokerage Prudential Bache in CBOT, referring to China.

Prices on Thursday (May 26) continued to climb back toward all-time records set earlier this spring. Fueling the rise in futures was the USDA report and continued concerns wet weather will keep farmers from planting enough corn to replenish precariously low supplies. Corn for July delivery ended up 3.25 cents, or 0.4%, at US$7.455 a bushel at CBOT.

For months, traders have been paying close attention to China's purchases because its need for grain is seen as an unknown. The nation surprised many by re-entering the global corn market last year after a 15-year absence. Although many traders believed China made additional purchases this year, Thursday's report was the first sale in 2011 confirmed by the USDA. Sales of more than 100,000 tonnes must be reported to the USDA, yet grain merchants have a variety of ways to structure deals so they don't necessarily have to be reported immediately.

Grain users such as livestock and ethanol producers are nervous about the potential for China to make large purchases because US corn inventories already are projected to reach a 15-year low before the next harvest this fall.

Some analysts worry that shortages could materialise in late summer. The US is the largest exporter of the grain, and buyers around the world are worried that rains that have delayed planting this spring will keep farmers from sowing as much of the grain as they originally planned.

Although many traders believed China made additional purchases this year, Thursday's (May 26) report was the first sale in 2011 confirmed by the USDA. Sales of more than 100,000 tonnes must be reported to the USDA, yet grain merchants have a variety of ways to structure deals so they don't necessarily have to be reported immediately

Farmers in China also are struggling with the weather due to a drought in the Yellow River Valley. Analysts said that China likely would buy more corn from the world market if its weather conditions remain unfavourable and US futures prices pull back again. "It depends on how their weather goes," the analyst said.