New policies, higher overseas price to hike China's corn prices in H2

China's corn price is predicted to increase in the second half of 2009 thanks to China's proactive macroeconomic policies and foreseen demand growth from the US corn market.

 

Currently, China's strategic corn reserves mount to 40 million tonnes, holding a dominant position in the market. Additionally, China's commitment to practicing a proactive fiscal policy and easy monetary policy suggests that price of corn will more likely rise than fall in the second half of the year.

 

National Grain and Oil Trade Centre held an auction at its grain market in Anhui province July 21. Initially hoping to send 2 million tonnes of corn out the door, the real amount actually only came to 745,900 tonnes, marked by a transaction rate of 37.2 percent and average price of RMB1,600 (US$234.08) per tonne.

 

The reason behind the low transaction amount was that the price exceeded the market price, said Yang Wennian, an analyst with Shanghai Tonglian Futures.

 

As a result, a counterintuitive relationship develops where the national corn reserve can't be offloaded while the commodity markets suffer from supply shortages. On markets in Sichuan and northeastern China provinces, large buyers of feed, corn is priced at RMB1,850 (US$270.82) per tonne, while in Hebei and Shandong, the price keeps growing.

 

Although corn prices will face pits and falls along their upward path, it will be harder to decrease. In fact, the price has bottomed out at RMB1,600 per tonne but is expected to elevate for the following reasons:

 

First, corn prices in the United States have resumed growth, leading China's corn dealers to buy domestically produced corn, thus pushing up corn prices in China.

 

Second, from a macroeconomic policy perspective, low corn prices and other agricultural products don't benefit farmers.

 

Third, the available cropland for corn expanded this year, though many places were seriously struck by natural disasters, limiting room for price drops.

 

US$1 = RMB6.83 (Aug 4)