November 3, 2011

Corn prices in China continued to slide in the week to Wednesday (Nov 2), as traders slowed their purchases due to a lack of credit and concerns of a downside risk.

In major producing regions in the northeast, prices fell around 1% to RMB2,090-2,300 (US$329-362)/tonne.

In the top two hog-raising provinces of Sichuan and Hunan, prices fell about 3% on-week to RMB2,480-2,550 (US$390-401)/tonne.

Some corn trading firms have suspended purchases in northeast China, believing prices will fall further, traders said.

Private corn traders have to pay 20-30% more than the benchmark interest rate and face higher bank fees - and it is difficult to get loans during a credit crunch, traders said.

"There is still scope for corn prices to fall in the next two months," a Shandong-based trader said.

Market supply should increase in November and December, as farmers generally sell their produce during this period.

But corn has a relatively limited downside, and farmers may be reluctant to sell if prices fall below RMB2,100 (US$330)/tonne, the Zhengzhou Grain Wholesale Market said in a research note.

In 2012, the highest corn prices, which are usually seen in southern China, will likely fall to around RMB2,500 (US$393)/tonne, compared with a record RMB2,700 (US$425)/tonne in September this year, pressured by likely demand decline from feed mills, cheaper feed wheat and the government's corn imports, the Zhengzhou market said.

The hog-to-corn price ratio, an indicator of returns from hog production, declined for a sixth consecutive week to 7.45 as of October 26, data from the National Development and Reform Commission showed.

A ratio of 6 is roughly a break-even level for pig farmers.