China Set to Cut Corn Imports as Drought Spurs Record Price

China Seen Reducing Corn Imports as Drought Spurs Record Price
Corn futures on the Chicago Board of Trade had the biggest monthly rally since 1988 last month, surging 27 percent and peaking at $8.205 a bushel on July 31. Photographer: Scott Eells/Bloomberg

Record corn prices amid the worst U.S. drought in more than half a century make it harder for China to import, the manager of the country’s grain market said. Shipments are set to decline, according to a Bloomberg survey.

“The U.S. drought has made it very difficult” for China to import corn to boost supply, Zeng Liying, deputy director of the State Administration of Grain, said in an interview in Beijing. “But we do have stockpiles, and corn planting has increased this year,” she said.

Shipments in the year from Oct. 1 may be less than the record 5 million metric tons estimated for this year by the U.S. Department of Agriculture as purchases depend on prices, according to Shanghai JC Intelligence Co., one of four researchers surveyed this week. Deliveries may decline to 3 million tons next year, the China National Grain & Oils Information Center said. Zeng didn’t comment on volumes.

A potential drop in imports by the second-largest user highlights the impact in Asia of the grain’s surge to an all-time high as baking weather across the Midwest reduces yields. Lower corn shipments may contrast with greater resilience in the soybean trade, with Rabobank International predicting that arrivals of the oilseed into China, the world’s biggest importer, may increase even after prices rallied to an all-time high.

Feed Mills

“The government has signaled it is preparing to sell state inventory” of corn to control prices, Shanghai JC Chairman Li Qiang said, citing discussions with feed mills. Corn shipments may decline as buyers who placed orders earlier this year sell undelivered shipments for an immediate profit, he said.

Corn imports by Japan, the largest buyer, will stay near the lowest level since 1986 this year as record prices spur feed makers to seek cheaper alternatives, the Japan Feed Trade Association said last month. South Korea will consider stockpiling corn, soybeans and wheat overseas to cope with volatile prices, the country’s Finance Ministry said today.

Corn on the Chicago Board of Trade had the biggest monthly rally since 1988 in July, surging 27 percent and peaking at $8.205 a bushel on July 31. The December-delivery contract was at $8.045 at 3:31 p.m. in Beijing. Soybeans, trading at $16.27 a bushel, climbed to a record $16.915 on July 23. Goldman Sachs Group Inc. has issued a three-month target of $9 for corn and $20 for soybeans.

On the Dalian Commodity Exchange, corn ended at 2,397 yuan ($376) a ton yesterday, 4 percent less than a record in March. Importing U.S. corn at current prices costs about 2,900 yuan a ton, compared with 2,500 yuan to 2,600 yuan for domestic supplies, according to data from Shanghai JC.

Corn Shortage

While China was a net exporter of corn until 2010, usage has outstripped record output as surging incomes in the second-largest economy fuel consumption of animal protein, which uses grain as feed. In 2012-2013, there’ll be a shortage of about 5 million tons on projected demand of 200 million tons and the biggest ever harvest of 195 million tons, according to the USDA.

The soybean deficit is larger, and Daron Hoffman, Shanghai-based director of research at Rabobank, said last month that Chinese imports would continue to increase next year even after prices in Chicago rallied to the highest ever. According to the USDA, China will consume 74.5 million tons in 2012-2013, buying about 61 million tons from overseas.

The rising price of U.S. corn makes it harder for China to use imports to meet the shortage, Shang Qiangmin, director general at the China National Grain & Oils Information Center, said on July 31. China will defer purchases and wait for prices to drop, Wayne Gordon, a strategist at UBS AG, said on July 27.

In April, the U.S. Grains Council said that China may displace Japan as the largest corn importer as early as 2014. China’s imports in 2015 may total 20 million tons, according to an October forecast from Singapore-based Olam International Ltd.

The area in China planted to corn this year will gain 2.3 percent to a record 34.3 million hectares (84.8 million acres), according to the China grain center. Above-average rains this year will help to boost yields, said Li of Shanghai JC.

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