October 19, 2011

 

 

While China is widely expected to achieve bumper harvests of corn this year, experts hold that this will ease supply pressure but is unlikely to significantly press down prices given high planting cost and tight corn fundamentals.

 

The state-backed think-tank China National Grain and Oils Information Centre forecast that the country's corn output would hit 184.5 million tonnes this year, compared with 177 million tonnes last year. The USDA also projected that China's corn production would rise to 182 million tonnes.

 

Corn prices on the spot market have been hovering at high levels this year while futures prices have been choppy upward mildly.

 

Industry insiders note that deep processing companies' price hike is one reason to prop up corn prices. In the August to September period, processing enterprises faced inadequate stocks and then actively raised purchase prices when new corn started to hit market in October. The purchase price stood at RMB2,200 (US$345)/tonne, up RMB480 (US$75)/tonne over last year.

 

Meanwhile, with mounting planting cost, farmers are reluctant to sell on expectation for higher prices. In June of this year, planting cost of corn generally increased 15-20% over last year. Fertiliser prices soared about 20% while corn seed prices climbed 20-25%. Besides, diesel price rise also added to growers' cost of mechanised planting.

 

"Now it's the early period for marketing season of new corn, and farmers' reluctance to sell is a main factor to spot prices," said Wang Na, an analyst with Everbright Futures. Strong performance of spot corn would increase futures market's rebound possibility, she added.

 

Although new corn was coming onto market successively, it had not provided efficient supply to the market, analysts said. Currently, widespread corn purchases have not started and corn prices maintain firm.

 

Corn harvests in northeast China, the biggest production base of the crop in China, have almost drawn to a close. The following peak marketing season will relieve supply pressure on the market, experts said.

 

"Corn prices are likely to correct in the short term but may then continue to pick up moderately."

 

Corn stocks would remain tight despite the bumper harvests, and China's 1.5 million tonnes of corn imports from the US and Argentina recently indicated corn stocks were not ample, analysts said.

 

Meanwhile, the US, the biggest corn producer in the world, saw a decline in its corn output this year and its corn stock/consumption ratio were also expected to drop significantly from last crop year.

 

The USDA revised up its estimate on US corn stocks to 22 million tonnes for crop year of 2011/12, still the lowest level in the past eight years. Meanwhile, the stock/consumption ratio was projected to fall to the bottom of 6.81% since 2002.