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Drought, exports set to cut China's corn stocks

Published on 17 September, 2009, Last updated at 01:43 GMT

China's huge corn stockpiles are set to dwindle as a drought threatens to cut this year's harvest, with the government ready to use export subsidies if supply worries fail to keep local prices buoyant.

The drought in China's main corn-growing areas may cut this year's harvest by 12 million tonnes, or 7.5 percent, from 160 million tonnes in 2008, said Yue Guojun, assistant president of China's largest grain trader and corn processor COFCO.

The drought was serious, he said, but a larger planting area this year would ease the impact. It is unlikely to be felt by consumers since China has built a reserve estimated at 36 million tonnes that can be put on the market if prices rise.

"In the coming years, we don't see any need for imports. China is basically balanced in corn supply and demand," Yue told reporters on the sidelines of a conference in Dalian.

Good sales of corn starch and alcohol mean corn processors are operating at higher rates than in early 2009, he said. Consumption is likely to be similar next year, since there has been no expansion of processing capacity this year.

Demand from feed mills could grow because of a U.S.-China trade dispute, he said. That could weigh on chicken imports, causing China's own poultry numbers to increase.


But the chairman of the country's top feed mill, New Hope Group [NWHOP.UL], said China needed to start preparing its corn market for imports.

"We expect to see a turning point in about three years, due to solid demand from feed mills and also from processors," New Hope chairman Liu Yonghao said.

"The government should study corn policy and be prepared as China's feed demand will continue to grow at an average of 5 percent a year due to increasing urbanisation," he said.

With the $585 billion government stimulus package helping to lift workers' and farmers' incomes, Chinese diets will take in more meat, dairy products and eggs, Liu said.

Liu said 60 percent of China's corn went into animal feed and 25 percent was processed, leaving little for human use. New Hope alone needed over 15 million tonnes of corn a year.

A company official previously told Reuters that an earlier attempt to import a small volume of U.S. corn in containers had prompted quarantine authorites to hold the shipment for months.

"If the U.S. corn price plus the freight rate enjoys a price advantage over Chinese corn, we will consider imports. We are keeping an eye on this," Liu said.


But Li Ming, COFCO's assistant president and general manager of COFCO Agri Trading and Logistics, dismissed Liu's comments as one company's opinion.

"The corn policy is very clear," he said. "The Chinese government will not relax control because the government is aiming at 95 percent self-sufficiency. If China imports more, it will drive up the international price. At the same time the U.S. is using more corn for ethanol production."

He said the government has started an export programme to ease pressure on its stockpiles, although the price difference between domestic and international markets meant no deals had yet been done.

Traders said the government was offering subsidies of 250 yuan ($36.63) per tonne on up to 2 million tonnes of exports, allocated to COFCO and Jilin Grain Group.

"Based on Dalian corn prices, even with the government subsidies, the price is still at least $10 per tonne higher than U.S. corn to South Korea and Japan," said a senior trading manager with an international trading house. "So far we haven't heard of any deals being done."


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