Dec. 22 (Bloomberg) -- Corn prices in China, the world's second-biggest producer, rose to a record as domestic demand looked set to swallow the country's largest-ever harvest and reduce exports.

Rising local prices made overseas sales unprofitable, state- affiliated agricultural research groups said. China sold corn for export at $160 a ton in September and the grain now costs more than $190 on the domestic market, said Li Ke, analyst at the National Grain & Oils Information Center. Corn on the Dalian Commodity Exchange gained 20 percent this year.

China, which competes with the U.S. to export corn to Asia, increased food consumption as economic growth boosted incomes. The country also joined a global rush for alternative energy that lifted Chicago corn prices to a 10-year high on Nov 27.

``The physical market is very tight, corn buyers have to compete with each other as farmers are reluctant to sell,'' Yu Renbin, analyst at the futures brokerage of China National Cereals, Oils and Foodstuffs Corp., said by phone from Shanghai.

The most actively traded Dalian corn futures contract, for delivery in May 2007, settled up 1.1 percent at 1,643 yuan ($210) after rising as much as 1.9 percent to 1,657 yuan, the highest since its inception in March 2005.

Chinese farmers are expected to bring in at least 141 million tons of corn in the year to September, 2007, compared with last year's 139 million tons, according to forecasts by analysts at the China National Grain & Oils Information Center and Beijing Orient Agribusiness Consultant Ltd.

Export Worries

The crop is expected to be 141 million tons, with potential for 144 million tons, said Li Ke at the National Grain & Oils Information Center, which is affiliated with the State Grain Administration. He forecast demand at about 140 million tons.

``Our forecast for the corn crop size is around 142 million tons,'' said Wu Bangyang, analyst at Beijing Orient Agribusiness Consultant Ltd., affiliated with the agriculture ministry. ``But consumption will rise to 142.9 million tons.''

Still, the government is worried about food supplies and inflation and it has restricted the use of corn in biofuels. Rising food prices caused China's inflation to accelerate to 1.9 percent in November, the fastest pace in 20 months.

The government suspended issuing new licenses for corn- ethanol projects and halted expansion of capacity in existing plants, the top economic planning body, the National Development and Reform Commission, said in a report yesterday.

Expansion in the so-called ``corn processing industry'', using corn as feedstock to produce fuels, starch and sweeteners, may cause problem for China's food security, the report said. There are four corn-to-ethanol plants approved by the Commission so far, with an annual capacity of 1.02 million tons, it said.

Korean Buyers

China has contracted exports of about 4 million tons by the end of February, but it makes little sense to export the corn at $160 a ton if it costs more than $190 to source it from the domestic market, Li said by phone on Dec. 19.

``There'll be difficulty for China to ship all the corn it promised to sell in export contracts signed so far,'' he said.

Importers in South Korea, the biggest buyer of Chinese corn, are concerned about securing the grain from China after March as China may limit exports when the harvest ends in February.

South Korea imported 8.54 million tons of corn in 2005, of which 69 percent was from China and only 25 percent was from the U.S., according to data compiled by the processing industry association and the Korea Feed Association.

``We are concerned about China's corn supply situation,'' said Lee Young Il, manager of Nonghyup Feed Inc.'s foreign trade department in Seoul. Nonghyup Feed is South Korea's second- largest feed grain buyer.

Most South Korean corn buyers will not be affected as they have purchased corn from suppliers on an optional origin basis, including U.S. and South American grain, Lee said.

To contact the reporters on this story: Feiwen Rong in Singapore at frong2@bloomberg.netJae Hur in Singapore at Jhur1@bloomberg.net

Last Updated: December 22, 2006 04:12 EST