June 29, 2011

Global corn prices are likely to be supported by constraints on Chinese corn output due to insufficient water resources, Standard Chartered said in a research note Tuesday (Jun 28).

While China has downplayed the likelihood of a surge in its corn imports, the bank said that the lack of water could affect the country's output potential.

In the first five months of this year, China imported about 1.24 million tonnes of corn, compared to 1.6 million tonnes in the full year of 2010.

China had highlighted at a recent International Grains Council conference that while its corn acreage is on par with that of the US, yields in China are much lower, implying more potential for China to raise yields, Standard Chartered noted.

However, the bank's concerns were raised earlier this month by an environmental expert with the European Union-China River Basin Management Programme, who said that current levels of water use are not sustainable, indicating that a search for higher yields would have to rely on other inputs.

Lars Skov Andersen, a deputy team leader for the programme and a director for global environmental consultancy COWI, said that China could lose about 30% of its agricultural output in five years if current rates of groundwater drawdown continue unabated.

The bank said that global crude palm oil and oilseed demand has slowed this year due largely to a deceleration in Chinese demand caused by policies designed to restrain inflation.

However, "the consequent drawdown of China's domestic stocks will result in additional import demand in the third and fourth quarters," especially if China's price caps on edible oils are removed, the bank said.

Meanwhile, speculation arose last week in US markets that China was pursuing a further purchase of one million tonnes of corn, following a dip in Chicago corn prices earlier in June.