China Vows Grain Self-Sufficiency; Cofco's Fei Sees Wider Corn Shortage

China, the world’s biggest consumer of grains, will probably have an increased autumn harvest and will stay self-sufficient in corn, wheat and other cereals, Zeng Liying, deputy director of the State Administration of Grain.

While corn imports may grow, the increase will not be significant, Zeng said at a conference today in Dalian. The country will keep its policies to support farmers and maintain controls on the domestic grain market, she said.

Heavy rain and low temperatures have hurt local corn, wheat and rice crops, contributing to price gains. Corn futures advanced 18 percent in Dalian in the past year and wheat prices increased 25 percent in Zhengzhou. China has imported about 1.3 million metric tons of corn in 2009-2010, the most in 14 years, and sold 13.7 million tons of stockpiles in northern provinces.

The shortage will worsen as consumption outstrips supply and seasonal corn imports “become the norm,” said Fei Zhonghai, a manager at Cofco Ltd., at the conference. The country should increase purchases to cool domestic prices, Fei said, estimating imports at 1.5 million tons in 2010.

While the government will buy local corn for stockpiling should farmers have trouble selling, it won’t necessarily replenish inventories to the level before the auctions of state stockpiles started, Zeng said today.

“It’s really hard to gauge what the government may do, but my guess is they may not participate in the procurement of the harvest fearing that will drive up prices,” said Feng Lichen, general manager at Yigu Information Consulting Ltd. “It’s possible China may abandon its policy of maintaining a certain level of stockpiles,” he said yesterday before Zeng spoke.

Imports Limited

The country may increase corn production by 7.6 percent this year to 156 million tons as rain and sun boost output, Feng said in an interview in Dalian. A crop that size may keep foreign purchases to 3 million tons in the coming year, he said. Imports may be as much as 5 million tons, Li Qiang, managing director at Shanghai JC Intelligence Co., said Sept. 3.

The government is determined to curb excessive corn speculation and hoarding, Zeng said. While consumption will increase, supply and demand is balanced and price gains aren’t justified, she said. Corn for May delivery advanced 0.6 percent to 2,050 yuan ($304) per ton on the Dalian Commodity Exchange today. The most active contract climbed to 2,070 yuan on Sept. 8.

Corn imports may be limited next year, said Yu Zuojiang, vice general manager of the biofuels division at Cofco Ltd. Increasing output this year and the government’s determination to control imports will curb gains in purchases, Yu said in an interview at the conference.

Stockpile Sale

China sold the lowest volume of corn yesterday since weekly state auctions in the northern growing regions began this year, as the government maintained curbs on participation in the sales.

Buyers purchased 34,700 tons, 13.5 percent of the 995,900 tons on offer, at an average price of 1,622 yuan a ton, the National Grain & Oil Trade Center said. Previous auctions have sold 19 percent to 100 percent, according to Bloomberg data.

China this month said companies wanting to bid in auctions must be approved by the state, a process involving clearance by three government agencies. The impact of state sales is waning as the new harvest has started arriving on the market, according to Ding Ling, analyst with Shanghai JC.

Including yesterday’s auctions, China has sold 13.7 million tons of corn in Heilongjiang, Inner Mongolia, Liaoning and Jilin. That’s 70 percent of the 19.5 million tons offered, according to Bloomberg calculations.

The State Administration of Grain comes under the National Development and Reform Commission, the top planning agency, and is responsible for regulation of distribution and administering reserves, according to its website.

--William Bi. Editor: James Poole

To contact Bloomberg News staff for this story: William Bi in Beijing at +86-10-6649-7578 or wbi@bloomberg.net

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