November 28, 2011


China's corn market still sees tight supply



Corn prices in China have increased substantially on-year even as new corn production hits a record high, indicating that the country's corn market still sees slightly tight supply.


Despite bumper harvest of corn this year, the prices of newly grown corn at the beginning of the marketing season 2011-12 stood at RMB2,200 (US$345)/ tonne, a jump of RMB480/tonne year on-year. The state-backed think-tank China National Grain and Oils Information Centre earlier estimated that the country's corn output at 184.5 million tonnes in 2011, compared with 177 million tonnes last year.


Northeast China's Jilin Province, the major corn production base in China, was expected to produce 26.5 million tonnes of corn this year, a record high. However, the province's corn price had been increasing to a level sharply higher than last year. After the new corn came onto the market, the price dropped slightly but still hovered at a high level.


Experts noted that as deep processing firms suffered shortfall of stocks, they hiked purchase prices and thus spurred corn prices to go up.


Currently, the main corn buyers in Jilin are Changchun Dacheng Industrial Group, COFCO Biochemical Co., Gargill, and some feed enterprises and traders. The deep processing industry has the say in the pricing of corn.


Gao Xingguo, a local official in Jilin, noted that cost was a major factor to push up prices. This year, planting cost of corn generally rose 15-20%, with prices of fertiliser and seeds up more than 20%, he added.


With rising cost, farmers become more and more reluctant to sell out corn, and this serves to firmly support spot prices after new grain was put on the market. With high expectation remaining for a handsome grain price, domestic corn prices are unlikely to slip back significantly.


China has so far imported more than four million tonnes of corn this year, and the imports have totally entered the state reserves.


Global corn supply is also tight this year. The US corn output this year continues to drop and its stock-to-consumption ratio declines sharply. The USDA showed in its October report that its corn stocks in 2011-12 were estimated to rise to 22 million tonnes, but this would still be the lowest level in the past eight years. Meanwhile, its stock-to-consumption ratio was expected to reach 6.81%, the bottom point since 2002.


Shang Qiangmin, director of the China National Grain and Oils Information Centre under the State Grain Administration, noted that corn consumption had been expanding in recent years along with the rising production. Not only did corn consumption for feed grow rapidly, the deep processing industry's demand for raw materials also went up rapidly as starch sugar and ethanol output was rising.


According to Shang, the corn processing industry in China is still in the high-profit period. Expansion in consumption signals changes in domestic corn industry structure.


Fan Zhenyu, a manager with COFCO Agri-Trading Co. predicted that China's corn consumption for feed would reach 112 million tonnes in 2011, up five million tonnes over last year, and the processing industry would consume about 53.5 million tonnes of corn, up one million tonnes on-year. Fan forecasted that the country's total corn consumption would increase to 181.3 million tonnes this year. This means that China is going towards becoming a regular corn importer.


China is the second biggest corn consumer in the world. It usually consumes 105 million tonnes of corn for animal feed, and about 60 million-70 million tonnes for deep processing industry.


The country started to see net corn imports in 2010, changing its position as a typical corn importer. Although corn imports were just 1.5 million tonnes last year, this has a strong signal sense and indicated a turning point in China's corn industry.


Some experts predicted that the gap between corn supply and demand would further expand this year as robust demand from both the feed and processing industries continue. The implication is that China should strive to raise unit yield to ensure domestic supply in the backdrop of tight supply on the international market.

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