December 12, 2011

 

China purchases 12-million-tonne corn from farmers 

 

 

China has bought 10-12 million tonnes of corn from farmers in the northeastern crop area at around RMB2,000/tonne (US$315.43) to refill state reserves, industry participants said Friday (Dec 9).

 

China's corn production and the government's purchasing decisions are closely scrutinised as a recent supply deficit for the yellow grain drove global prices higher.

 

Beijing's move boosted corn futures nearly 1% on the Dalian Commodity Exchange Friday.

 

"The government is certainly out to refill its depleted stocks, which was the only reason for the Dalian rally today," said an analyst with Shanghai JC Intelligence Co.

 

The purchase price of around RMB2,000/tonne (US$315.43) is roughly on par with area spot prices of around RMB2,040-2,050/tonne (US$321.73-$323.31), he said.

 

A record grain harvest this year, announced last week, was the precursor for the massive state purchases, which were likely undertaken by the official stockpiler China Grain Reserves Corp. also known as Sinograin.

 

China's 571.2 million-tonne harvest, which rose 4.5% on-year, was largely driven by an 8.2% increase in corn output, the National Bureau of Statistics said.

 

The bumper harvest is easing pressure on government corn reserves, which were drastically down as Beijing used the stockpiles to quell food price increases this year.

 

The country's mid-year stocks-to-use ratio for corn, an indicator of how much supply China held in store as a proportion of its consumption, was around 35.7% in 2010-11, down sharply from 85% in 2000-01, Standard Chartered research showed.

 

This led Sinograin to rack up about four million tonnes of US corn deals, according to executives familiar with the matter and a state grain agency report.

 

But the large domestic harvest has given the government a better alternative to overseas purchases.

 

Sinograin hinted at the domestic purchases in a report on its website Friday, which said, "Industry experts suggest the government should immediately... protect farmers' incomes by turning grains from farmers into supply and stockpiles."

 

The government may be considering further domestic corn purchases next year, a Shanghai-based trader said.

 

Separately, a Zhejiang-based trader said that market expectations were for the government to relax output restrictions on corn processing industry, further underpinning prices.

 

China's top economic planning agency said in April it would limit non-animal-feed projects that use corn resources.

 

The government feared that such consumption diverted supply from animal feed millers amid the prospect of corn shortages at the time.