September 29, 2011

Corn purchasers in China are being prudent in making purchases due to market uncertainties, as new corn is about to be put on market.

Although the country's corn output this year is expected to see an increase of four million tonnes over last year to hit 181 million tonnes, the market expectation goes that the corn price might not fall. In this circumstance, the corn purchasers expect new corn may start at a high price and slide later.

The corn price has been propped up by fast growing demand this year. Meanwhile, because the cost of planting corn has increased, farmers are reluctant to sell their corn at a lower price. Furthermore, low inventories in international and domestic markets makes a fall of the price an even more distant prospect.

Some companies in urgent need of corn have already started purchasing. The offer price for the new corn in Heilongjiang and Shandong provinces, two major corn producing areas, has climbed to around RMB2,000 (US$312)/tonne.

In the 2010-11 crop year, the corn price surged from RMB1,900 (US$297)/tonne to RMB2,400 (US$375)/tonne due to short supply. Analysts predict that in the coming crop year corn prices might not rise as much as in the 2010-11 crop year.

As the trend of corn prices is not clear, He Xiaoping, an official of COFCO, China's leading grain and oil operator, suggests enterprises should purchase corn futures on the Dalian Commodity Exchange (DCE) to hedge the risk.