December 23, 2008


China bolsters corn purchase plan, soy may be next

China plans to buy an additional 20 million tonnes of corn for state reserves, four times more than traders had expected, and soy is likely to be next for stockpiling, according to traders on Monday (Dec 22).


This brings the total amount of state purchases to 30 million tonnes of corn, which should be enough to shore up domestic prices, said an industry source.


The government has so far bought about 3 million tonnes of corn out a previously approved 10 million tonnes. In total, the purchases could absorb one-fifth of China's corn crop.


The government's aggressive efforts to support local prices have led to Chinese corn prices to be about 10-percent higher than US corn prices in Asia, traders said.


The extra corn purchase raised speculations that the government may increase purchases of domestic soy, causing some Dalian soy contracts to jump by their daily limit.


The government has been purchasing soy at above-market rates since October, driving up prices and pushing many northern crushers to buy cheaper imports instead. However, the plan is falling to pieces and state-run warehouses are turning back to low quality soy, causing spot prices to fall to RMB3,400 (US$496) per tonne, 8-percent below Beijing's bid.


Crushers in Heilongjiang province, China's top soy area, have also begun to crush domestic soy again, traders said.


Traders said the physical market remained weak despite the approach of Chinese New Year, which usually is the peak consuming season for edible oils.


With domestic supplies looking secure, the government may allow corn exports of as much as 7 million tonnes next year but so far no decision has been made. China was the world's second largest corn exporter early this decade but shipments have since fallen to nearly zero this year.


Meanwhile, a domestic surplus grows as demand from feed mills and corn processors remains low, and trading houses have held off buying the new crop, leaving farmers struggling to sell their harvest.


As a result, a trader with an international trading house said allowing exports may not help without incentives as Chinese corn is not competitive, and the issue is to find buyers instead of setting quota.

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