September 20, 2011


China to sell 3.7-million-tonne corn reserves to tame inflation


The Chinese government is expected to release about 3.7 million tonnes of corn from state reserves by November after record prices threatened to thwart Beijing's efforts to clamp down overall food inflation.


China National Grain and Oils Information Centre (CNGOIC) said it would release corn to curb prices and get rid of old stocks to make way for the new harvest.  


With state stocks estimated at less than one month's consumption and strong domestic demand eroding what is forecast to be a bumper harvest, China is expected to take advantage of weaker US prices and import the grain from its traditional supplier, traders said.

Analysts saw China buying up to nine million tonnes in the year starting from October, with a government official saying the country's imports could hit 11 million tonnes by 2015.


Physical corn prices have risen sharply this month, as supplies are being drained before the arrival of the new harvest in October. Rains in parts of northern China have also delayed the harvest in those areas by one to two weeks.


At the northeastern Dalian port, the key shipment point for grains from China's north, physical corn was at an all-time high of RMB2,480 (US$388) a tonne after rising 5% this month.


Chicago Board of Trade corn has slid around 14% from an all-time high of almost US$8 a bushel in June amid concerns over a global recession curbing feed grain demand.


Traders estimated Beijing has rebuilt its corn reserves to about 12 million tonnes after years of running them down to cover its domestic deficit.


This reserve figure is less than China's estimated corn consumption for one month, and if it is further depleted by releasing stocks, analysts expected Beijing to import to replenish its silos and cover its needs.


China usually keeps three-months worth of consumption in reserve for strategic reasons.


"The domestic harvest may increase by 10 million tonnes and some even estimate it (the increase) at 17-18 million tonnes," analysts said, but adding that consumption growth could offset the increase and there will still be a big deficit next year.


The global market is sensitive to China's corn purchases, which could trigger a rally in US prices given prospects of tightening world supplies.


Beijing imported more than two million tonnes of US corn for state reserves earlier in the year, and traders estimated about 600,000 tonnes have already arrived.


USDA data estimates China's 2011-12 consumption to rise to 182.5 million tonnes, while production will increase to 178 million tonnes, creating a 4.5 million tonne shortfall.


In 2010-11, there was a one-million-tonne deficit.


"If the government releases a small volume (of corn), it may not be enough to control price rises, the market has anticipated a shortfall of 3-5 million tonnes before the domestic harvest," said one industry analyst.


Spikes in pork prices have regularly driven up Chinese consumer inflation, although the meat only accounts for 3% of China's consumer price index basket.


A senior Chinese industry official and the China mission chief of the International Monetary Fund both warned against cyclical rises in pork prices, which could delay China's escape from stubbornly high inflation.

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