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Has China to import corn?

China's self-sufficiency in corn is suddenly in doubt because a drought is threatening to cut the harvest as much as 10 percent and the government's stockpiles are thousands of miles from the market, prompting the question: is it time to import?

 

Although imports are not yet imminent, any purchases of corn by China, which until 2003 was the leading Asian exporter of the grain, could ignite the Chicago market, which has fallen by nearly 30 percent since June on expectation of a second largest ever U.S. crop.

 

China isn't short of corn, which it mainly uses for making animal feed, food additives and chemicals like citric acid, ethanol etc. And until this month nobody was talking about imports.

 

But prices in the south of the country jumped by $30 per metric ton above U.S. corn last week, opening the question of U.S. imports for the first time in three years.

 

Not everyone is convinced. But if a U.S. cargo comes to China, the impact could be huge. f China imports, world corn prices could increas dramaticaly.

 

And Xiwang Group, a top Chinese corn processor based in the northern province of Shandong, is readying for imports because of the surging prices, a company official told Reuters.

China had a bumper harvest of 166 million metric tons last year and, largely to protect farm incomes, the state stockpiling agency Sinograin bought up 35.4 million metric tons. That was a huge increase over the previous year, when the stockpiling program was trialed and the government bought 5 million metric tons.

SUPPLIES DEPLETED, BOTTLENECKS

 

Sinograin effectively exhausted supplies in the northeast, leaving commercial buyers to rely on corn areas further south, such as Hebei and Shandong. But those supplies are now used up, so southern buyers are suddenly clamoring to buy corn from government warehouses 2,500 km (1,553 miles) away.

 

"Everybody has to buy corn from Sinograin this year, instead of from thousands of trading houses as before. The shift in the trading model has doubled or even tripled the delivery time," said Feng Jilong, deputy general manager at Jilin Grain Group.

Corn from the north faces more than a month of bottlenecks on the congested railways, a problem made worse by the government's decision to move 6.5 million metric tons south at the same time. 

Imports could only come with the government's blessing, since annual import quotas expire if not used by September, so Beijing would have to reallocate quotas before anyone could import corn.

Xiwang, which imported the first cargo in years in 2006, has applied for a permit to import genetically modified corn.

 

But the government may resist pressure for imports because of its large stockpiles, even if they are in the wrong place.

 

And the rising price of corn has yet to worry its inflation-watchers. Although corn has helped push up prices of eggs, dairy and pork, overall food prices rose just 0.5 percent year-on-year in August after falling 1.2 percent in July.

 

Moreover, the harvest is due next month. Agriculture Minister Sun Zhengcai expects it to be similar or even slightly above a "normal" year, he said this week.

 

That could mean about 150 million metric tons, implying a 10 percent drop from last year, said an analyst at China National Grains and Oil Information Center (CNGOIC).

 

CNGOIC estimates demand for the new harvest at 148 million metric tons, an increase of 4 million metric tons from the past year, leaving little breathing room if the harvest is "normal" -- and a risk of a deficit if demand gathers pace or the crop is small.

 

China's corn demand has swelled thanks to a growing taste for meat among migrant farmers and other beneficiaries of China's $585 billion stimulus plan. Feed mills, which were hit hard in the first half of the year, have seen demand recovering as pig and poultry breeders returned to profit.

 

Government reserves should cover any gap, although Sinograin has already sold 17 million metric tons this year. Assuming weekly sales until early November, its northeastern warehouses would still hold 5-7 million metric tons at harvest time, Jilin's Feng said.

 

"Maybe early next year, there could be a reassessment when the government has a clearer picture about the decline in China's production and where demand stands," said one feed executive.

 

 

 

 

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