August 11, 2014

China may see drop in corn output due to drought

China's corn production may fall for the first time in five years, according to Shanghai JC Intelligence Co.

The development came as a result of drought in the North China Plain, the country's second-largest producing region. Output may decline to 200 million tonnes from last year's record of 203 million tonnes, the agricultural researcher said.

Widespread drought in the area fuelled rallies in grains traded on the Dalian Commodity Exchange. Rising domestic corn prices will prompt animal-feed producers to use alternative grains such as wheat, thus complicating the government's efforts to control cheaper imports.

"Feed mills will want to use more wheat as substitute for more-expensive corn," said Zhang Zhixian, an analyst at Cngrain.com. "Imported materials are surely much cheaper, but whether to buy more imports is a decision by the government."

Output in six provinces including Henan, Hebei, Shandong, Shanxi, Shaanxi and Inner Mongolia will be lower than estimates a month ago, according to Shanghai JC. Henan, the most affected province and China's fifth biggest producer in 2013, will see yield plunge 12.2%, the researcher said.

Corn for December delivery fell 0.3% to US$3.70/bushel on the Chicago Board of Trade on August 8. Futures are down 12% this year on expectations of a bigger U.S. harvest. The grain last traded at US$9.79/bushel on the Dalian exchange.

US corn shipped to China's eastern ports would be about US$288.37/tonne, or about 65% of domestic prices, Shanghai JC data show. Since November, China has increased inspections of corn shipments and rejected those found with genetically modified variety, MIR 162, which has not been approved for import.

After traders responded by shipping substitutes such as dried distillers' grains, sorghum and barley, the government took further steps by effectively banning DDGS imports and announcing that it would also toughen controls on sorghum, barley and alfalfa hay, according to statements by the General Administration of Quality Supervision, Inspection and Quarantine in Beijing.