June 16, 2011

Corn prices in China extended gains in the week to Wednesday (Jun 8), on the back of low stocks with farmers and strong demand from feedmills and processors.

Prices in major cities in Heilongjiang, the nation's top corn grower, rose about RMB50 (US$8) from a week earlier to RMB2,040-2,160 (US$315-333)/tonne, while prices in major consuming provinces such as Sichuan and Hunan rose to as high as RMB2,500 (US$385)/tonne, an increase of about RMB20 (US$3)/tonne from a week earlier.

China's corn prices have hit record level as traders build high inventories, ignoring the government's warnings against speculation and hoarding. High pork prices are also fueling demand for this popular ingredient in animal feed.

Average wholesale pork price rose to RMB22.52 (US$3.47)/kg in the week to June 10, approaching the record high of RMB22.88 (US$3.53)/kg touched in February 2008, according to the Ministry of Commerce.

Pork prices are set to rise further in the near future, after hitting a three-year low in the middle of last year. The 2010 fall in prices had forced many hog farmers to exit the industry, leading to reduced supply this year. Soaring input costs and hog disease at the beginning of this year also contributed to the price surge.

In the previous week, piglet prices in China's 470 markets monitored by the Ministry of Agriculture soared 108% from a year earlier, suggesting considerable enthusiasm to expand hog production.

To control corn consumption by non-feed processors, the government has ordered a probe into the alcohol and starch sectors which also use corn in large quantities.

Once the probe is completed, analysts expect Beijing to get tough with non-feed users of corn to prevent a further rally in prices.