December 5, 2008

China to expand corn exports in 2009


Analysts predict China may expand corn export to 4 million tonnes next year as futures market have responded poorly to state purchase.


The main corn contract in Dalian Commodity Exchange (DCE) closed 28 points lower at RMB1,511 per tonne on Wednesday (Dec 3, 2008).


In spot market, China's corn price kept sliding since late November, with average price of the second grade corn reaching RMB 1,499 per tonne in national wholesale markets.


The coming second round of state purchase failed to boost corn futures, which reflected that sluggish corn demand would continue to drag corn market and further press prices down.


State departments have decided to launch the second round of grain purchase for state interim reserve this year, with 1.03 million tonnes of soy, 1.3 million tonnes of corn in Heilongjiang Province, one of China's major grain producers.


The first round of purchase aimed to acquire 5 million tonnes of corn, which was considered too small to support the price, as corn output has scored 60 million tonnes this year in north-east regions, China's main grain producing areas.


An official with Jinpeng International Futures suggested China should carry out the second round of state purchase as soon as possible when corn market faces profit squeeze both in supply and consumption, and the price is only propped up by state purchase.


The severe situation of downstream industries also challenges the new state purchase. As the price of live pigs has dropped to the lowest this year, the profit of livestock cultivation is crimped and most farmers have delayed increasing pigs, leading to wait-and-see attitude of feed factories.


State purchase for reserve is hard to boost corn market due to faltered feed demand, analysts hold.


Meanwhile, state grain depots in Heilongjiang are estimated to be fully loaded in 10 days at the speed of hoarding 180,000 tonnes per day.


The declining grain price worldwide also deters grain processing enterprises from purchasing domestic grain.


US$1 = RMB6.877 (Dec 5)

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