November 28, 2008

China corn prices drift lower; thin trade ahead of government purchase


Corn prices in major production regions in China drifted slightly lower in the week to Wednesday (November 26) on thin trade, as farmers prepared for state reserve warehouses to start buying stockpiles.

In Heilongjiang province, a major production base in the northeast, corn prices were around RMB1,450 a tonne, down slightly from RMB1,480/tonne a week earlier.


Prices in Jilin province, another producing region in the northeast, were quoted at RMB1,480/tonne, also about RMB20 down from RMB1,500/tonne a week ago.


Corn prices are stabilizing at current levels, an analyst said.


"Corn prices have already fallen very low, very close to the cost of production," said Wang Cheng, of Nanhua Futures in Hangzhou. "The government's stockpiles are also going to support market sentiment."


The slight downward nudge to prices in the week to Wednesday may have come from farmers who sold last week ahead of government stockpiling purchases, traders said.


The government said in late October it will buy corn from the northeast production regions at RMB1,500/tonne to support prices and protect farmers' incomes.


Analysts said last week the market now expects the government to increase its corn stockpile by another 5 million tonnes to support domestic prices.


Corn exports in October fell 88 percent on year, and worries remain corn production, set to rise 2.4 percent from last year, will hurt the crop's outlook.


Many small feedmeal producers in the south had shut down earlier this year because of financial difficulties.


"The government's aim is to stabilize the prices, not to let it rise or fall too much," Wang said.


In a move to boost exports, Beijing is eliminating export tariffs on corn, among other grains, from December 1. But analysts said corn prices already exceed global prices, and the tax cut wouldn't help.
US$1=RMB6.879 (Dec 2)

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