July 27 (Bloomberg) -- China, the world’s second-largest corn user, will probably delay purchases after the worst U.S. drought in half a century drove prices to a record, said UBS AG.
The country canceled orders for U.S. corn, paring shipments for delivery in the year beginning Sept. 1 to 861,321 metric tons as of July 19 from 1.1 million tons a week earlier, U.S. Department of Agriculture data showed.
“Some of the corn exports that China has taken are actually being diverted to South Korea and Japan,” Wayne Gordon, a strategist at UBS, said in a phone interview today, citing information from U.S. shippers. “They’ll wait for the price to fall,” he said.
Corn surged to a record $8 a bushel on July 23 as drought scorched crops in the U.S., the largest grower, increasing concerns about a shortage. World demand will total 878 million tons, topping a harvest cut to 864 million tons from an earlier forecast of 917 million tons because of the crop losses, the International Grains Council estimates. Futures rose 0.3 percent to $7.7825 on the Chicago Board of Trade at 4:55 p.m. in Singapore, taking gains since June 15 to 54 percent.
While conditions worsened in the U.S., China’s production prospects improved, prompting UBS to trim its import forecast for the nation to 7.5 million tons in the year beginning Oct. 1 from 11 million tons, Gordon said from New York.
That’s still higher than the USDA’s outlook of 5 million tons and the 3 million-ton estimate from state-researcher China National Grain & Oils Information Center.
El Nino, which can bring heavier rainfall in South America, may improve supply next year as it boosts production in Brazil, the third largest grower, and Argentina, the second-biggest exporter. That may cut prices in early 2013, allowing China to secure supplies at a lower cost, Gordon said.
Higher domestic production may allow China to hold off most of its imports until early next year, he said. Harvesting began this month in the south, while the crop is at an early to middle vegetative stage in the north, the United Nations’ Food & Agriculture Organization said July 11, predicting China will harvest a record 197.5 million tons.
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