June 2, 2011

Corn prices in major producing areas of China extended gains in the week to Wednesday (Jun 1), while traders and processors said further increases could be in store due to tight inventories with farmers.

In Zhucheng city in the eastern province of Shandong, where the corn processing and animal feed industries have heavy presences, corn prices rose to about RMB2,360 (US$364)/tonne from RMB2,220-2,300 (US$342-355)/tonne a week earlier.

Corn prices in Henan and Hebei provinces, the country's main producers, increased about RMB40 (US$6)/tonne from a week earlier to RMB2,160-2,170 (US$333-335)/tonne.

Corn processors, the main driving force behind a surge in corn prices this year, may gradually stop increasing bids in the second half of the year as their inventories of starch and alcohol are very high and profit margins are declining, the Zhengzhou Grain Wholesale Market said in a weekly research note.

But rising demand from animal feed mills amid high pork prices will underpin corn for the rest of the year, it said.

China's pork prices rose to a three-year high at end of May, according to the Ministry of Commerce. "The surging prices gave a false impression of a market boom, [but this] won't last forever," analysts said.

"Traders will incur big risks and pay high prices for playing games with the government," experts said. Traders have built large stocks of corn in a bet that prices will rise further.

The government may introduce tougher measures, including auctioning of more corn from state reserves, ordering traders to stop purchases or limiting production at processors, they added.

In major producing areas such as northeastern China, corn prices have risen about 15% this year, while prices in major consumption areas such as Shandong and Guangdong have risen about 20%.