October 12, 2010

 

Surging US corn prices may halt imports to China

 

 

China's corn imports are likely to stop in the short term because of a surge in US prices and China's own harvest, which is almost complete, feedmill executives said on Monday (Oct 11).

 

China has harvested more than two-thirds of its corn crop, according to the Agriculture Ministry, although rains forecast this week could slow progress in some areas in the northeast, the main growing area.

 

A lack of imports will not derail operations by feedmills in China, the world's No.2 corn consumer, because many switch routinely between corn and wheat, and the latter, which is richer in protein, remains in plentiful supply, traders said.

 

US corn prices on the CBOT jumped 8.5% on Monday (Oct 11) to the highest in more than two years, after the US government forecast supplies in the world's top exporter would shrink to their lowest in 14 years.

 

Surging CBOT prices pushed up China's Dalian futures limit up on Monday, although physical prices remained largely steady as more supplies from the new harvest came onto the market.

 

"China's (past) imports of US corn were due to the cheaper prices. Now with imported corn at RMB2,600 (US$389.49) per tonne, nobody is interested in imports because we can get domestic corn at RMB2,100 (US$314.58) in the south," said an executive at a big Chinese feedmill.

The executive said that if corn prices rise further or above RMB2,300 (US$344.54) per tonne, feed wheat or even early-season rice will be largely used to replace corn. He added that large imports of corn could still be possible if China's yuan appreciates strongly.

 

China has imported the largest volume of corn in a decade from the US this year due to last year's poor harvest and a recovery of animal feed demand.

 

But there is no such pressure on domestic wheat supplies, although the global wheat market has tightened because of Russian export restrictions. China's reserves are equal to half a year's consumption, according to analyst estimates.

 

China released most of its corn reserves to cover a shortage after last year's lower harvest and market participants expect the government will have to refill its dwindling stocks at some point.

 

Beijing is perennially concerned about rising food prices and overall inflation, as well as farmers' livelihoods. In past years it has quickly stockpiled crops to help shore up domestic prices but this year there is no hurry to stockpile, despite currently low stocks.

 

Analysts and traders said the government may also reduce subsidies offered to state-owned companies and feedmills which buy corn from farmers in the northeast.

 

Last year, the government offered RMB140 (US$20.99) per tonne of corn, prompting companies to snap up supplies in the northeast and helping to push up prices to a record high level.

 

Industry officials expect the country's corn harvest this year to be larger than last year. Output is expected to rise by 15 million tonnes, reversing last year's fall due to a severe drought in the northeast.