July 13, 2011

 

 

Spot corn prices in China will end their rising trend and correct to synchronise with futures prices, as tight supply is expected to ease as imports are arriving at ports and new corn harvest is anticipated to increase this year, analysts said.

 

Since the middle of June, futures prices of corn both in and outside China have been falling steadily. The January corn contract on the Dalian Commodity Exchange even dived below the spot price.

 

In contrast with the weak futures market, the spot corn market was booming, with purchase and selling prices rising. The prices in Henan, Hebei, and Shandong provinces even hit record highs of about RMB2,300 (US$356)/tonne.

 

However, corn imports from the US are being delivered at ports and China is about to import corn from Argentina. Amid expectations of a bumper harvest this year as new corn crops in China and US are growing well, the current supply/demand relationship may be changed after new corn enters the market.

 

The USDA announced in a report that the US corn planting area is estimated at 92.3 million ha, 5% higher than anticipated. Meanwhile, its corn stocks stand at 3.67 billion bushels, far higher than the earlier forecast of 3.32 billion bushels.

 

The slump of corn prices on the international market further reduced China's import costs. Analysts say that imported corn will start to show its price advantage in the coming months, and this will press down domestic prices. In the meantime, China may launch a large amount of corn purchases from abroad while international corn prices are correcting.

 

Currently, China's domestic spot corn market remains tight. Farmers and small traders' stocks are limited while large grain companies and traders hold high levels of inventories.

 

Since the middle of June, high temperature and rains in China's major corn producing areas have been favourable to growth of the crop.

 

Meanwhile, deep-processing companies lack strong incentive to purchase due to an overall drop of margins in the industry. The majority of large and medium-sized deep processing mills have already stored corn stocks which can be used for a month to six weeks, analysts said. That means they will not make large purchases before new corn comes onto the market.

 

Furthermore, as wheat prices are lower than corn prices, companies tend to replace corn with wheat as animal feed, and this will offset part of corn demand for feed consumption.

 

The government's ample reserves can also be used to regulate prices, analysts said.

 

Industry insiders project that spot corn prices in China will continue to fluctuate at high levels in the short term, but are likely to slip back after the new harvest is in.