April 18 (Bloomberg) -- China, the second-biggest corn user, is taking steps to limit consumption in the biochemical and sweetener industry to ensure supply for livestock farmers, said three people who received a government document on the matter.
Processors will be barred from buying more corn than their consumption level in 2009 and the government will increase value-added taxes on corn-based products, said the people, who declined to be identified as the information isn’t public.
China’s demand for corn-derived products, ranging from pharmaceutical supplies to alcohol and sweetener in beverages, is outpacing growth in consumption of livestock feed. The introduction of curbs on lending to companies for buying corn showed demand had exceeded production, underscoring the growing need for imports, according to Wanda Futures Co.
“While the government may succeed in limiting further purchases by the industrial processors, the policies may be just forcing companies to consume inventories, but won’t make demand disappear,” said Wang Chen, Beijing-based director of research at the country’s second-biggest agricultural futures brokerage.
Financial institutions were ordered to stop providing companies with loans to purchase corn until the end of June, according to the document cited by the people, dated April 8.
The government will increase surveillance of large companies to ensure their operations conform with directives and local authorities were ordered to root out processors with small or inefficient operations, they said. The government will stop accepting new license applications for buying grain, they said.
Large industrial processors had anticipated the tightening moves and stockpiled more supplies, Wang said. As of April 5, companies and traders bought 74 million metric tons of corn in major producing-regions, more than twice the amount at the same time last year, according to data from the State Administration of Grain. The data indicate supply is mostly in the hands of traders and little is held by farmers, Wang said.
Industrial corn processors such as state-owned Cofco Ltd., often outbid livestock farmers because they profit more from the grain they buy, Wang Licai, vice chairman of the China Starch Industry Association, said March 16.
Industrial use of corn in the year through Sept. 30 may jump 11 percent to 50 million tons, or about 29 percent of China’s total consumption, according to a forecast by China National Grain & Oils Information Center. Livestock feed demand will grow by 6 percent to 105 million tons, 61 percent of the total, the center’s data show.
Whether China’s consumption can be met without more imports also depends on the prospects for this year’s crop, expected to be planted this month, Wanda Futures’ Wang said. “Any production snags will likely force the country to buy at all costs, probably in the form of more state purchases,” he said.
China’s state reserve managers are believed to have bought 1 million tons of U.S. corn last month when prices plunged following the earthquake in Japan, Wang said.
A call to Li Pumin, deputy secretary general at the National Development and Reform Commission, the top economic planning agency, was not answered.
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