China, the second-biggest corn consumer, may import more of the grain if global prices fall 19 percent to about $5 a bushel, a level that is significantly below domestic prices, said Yigu Information Consulting Ltd.
China’s corn supply is sufficient after a record harvest and the government may import to boost stockpiles only if there is a “clear price advantage,” said Feng Lichen, general manager of Yigu, China’s largest corn information portal.
Corn, used as an ingredient in feed and in ethanol, has plunged 20 percent since Aug. 31 on high global grain supplies and concerns that Europe’s deepening debt crisis and a slowing global economy may sap demand. Morgan Stanley on Dec. 13 lowered its price forecasts for agricultural commodities including corn because of rising supplies.
China may get the “best chance for corn at value” if it imports in February, when Argentina’s crops are harvested, Tim Hannagan, Chicago-based analyst at brokerage PFG Best Inc., said in an e-mail today. Uncertainty about U.S. planting usually drives up prices in April, he said.
China last made a big purchase around Oct. 13, when the U.S. Department of Agriculture announced sales of 900,000 tons. With harvests expanding from Argentina to China, prices will fall as much as 30 percent to $4.305 a bushel in Chicago trading next year, according to the median of 24 analyst estimates compiled by Bloomberg News.
“China’s government isn’t in a hurry,” Yigu’s Feng said by phone from Dalian Dec. 19. It has over 10 million tons stored from last year’s domestic harvest, and has ordered 4 million tons of imports, which are enough to “control the market,” said Feng.
Corn for March delivery fell 0.3 percent to $6.155 a bushel on the Chicago Board of Trade at 9:18 a.m. Beijing time. End users in China would pay about 2,400 yuan ($378) a metric ton for U.S. corn, said Tommy Xiao, analyst at Shanghai JC Intelligence Co., citing prices from exporters.
Prices at Shenzhen port, a leading indicator for southern China, were 2,420 yuan a ton on Dec. 21, so imports have no price advantage, said Xiao. At $5 a bushel, U.S. corn would be 2,100 yuan a ton after arriving in China, Xiao said. Imports are subject to premiums, freight costs of about $59 a ton currently, a 13 percent VAT and 1 percent tarrif, according to Xiao.
Prices in Chicago may average $6.60 a bushel in the 2011-2012 marketing year, down from a previous estimate of $7.25, according to Morgan Stanley. Corn may be “one of the weaker commodities in 2012,” partly because of record supplies from South America in the first quarter, Hackett Financial Advisors said Dec. 2.
Corn prices in China will be “range-bound” between 2,200 yuan and 2,400 yuan a ton in the next few months, Yigu’s Feng said.
China said Dec. 19 it would buy domestic corn to support farming. The policy effectively sets a price floor of about 2,200 yuan in Dalian, the price-setting center in China, said Feng. Shipping to Shenzhen from Dalian is about 40-60 yuan a ton, according to Shanghai JC.
The upper range of next year’s domestic price depends on feed demand from the livestock industry and corn processors, said Feng. The government may allow a gain of 100 yuan to 200 yuan for increased production costs, he said.
Corn prices in Chicago slipped 1.9 percent last week after the USDA on Dec. 9 raised China’s corn output estimate for this year by about 7 million tons from a previous outlook to a record 192 million tons, in line with China’s official estimate.
It’s “a joke” that the USDA adopted this figure given China’s limited yield and land, Feng said. Yigu projected 170 million tons, compared with 166 million tons by Shanghai JC and 189.2 million tons by Geneva-based SGS SA.