November 26, 2010

China's Jilin fails to secure reserve corn from farmers

Government corn warehouses in China's top corn-producing province, Jilin, are empty after the recent harvest as farmers hold out for higher prices from processors, according to reports on Thursday (Nov 25).

Jilin is expecting a bumper harvest of 29.5 million tonnes of corn this year, but local farmers have stored their crops in anticipation of high prices because of strong demand from the corn processing industry.

"We need to consider the prevailing market prices," said a supervisor at the local branch of the state reserve warehouse. "Farmers are not going to sell at government-set minimum purchase prices."

Sugar and starch prices rose amid severe crop shortages this year, which boosted processing companies' profits and stimulated their demand for raw material.

Chinese corn prices have risen strongly after last year's harvest failed to keep up with demand for corn-based animal feed and food additives.

This year China is facing another shortage, according to the country's banking regulator, which has called on banks to offer urgent support to the agricultural sector.

China suddenly began importing corn this year, surprising the market and lending support to Chicago prices.

However, the imports go to animal feed rather than processing because of Beijing's worries about allowing the imported corn, which is genetically modified, in food additives. China also banned processors from a series of sales of corn reserves in recent months, in a bid to support animal feed producers.

That means China's corn processors are dependent on buying up the domestic crop, giving farmers a captive market.