Chinese Government Concerns And Stabilizes Corn Prices

Corn prices will largely remain stable thanks to the country's reserve system

, government officials amid concerns that they would continue to grow due to lower yields and market speculation. After the last shipment in 2006, China's imports of corn from the United States resumed earlier this year. Although imports are expected to grow further, these will remain small compared with China's overall demand.

China's reserve and monitoring system will enable corn prices to remain largely stable, as corn is seen as an important food grain. The reserve is big enough to guarantee corn supplies when demand rises. Domestic corn prices surged about 11 percent in the past six months, but were easing from Tuesday, both on the auction and futures markets, partly due to the government crackdown on hoarding of agricultural commodities.

At the government's weekly auction on Tuesday, the average price of corn declined 5.5 percent to 1,679 yuan ($246) per ton, compared with 1,724 yuan per ton on May 25, last month's highest. Corn futures fell 3.2 percent to 1,984 yuan at China's Dalian Commodity Exchange on Wednesday, compared with May 24. However, it is estimated the corn price would rebound as concerns over tight supply remain in some regions. Due to the bad weather in regions where corn is a major crop, China produced 163.97 million tons of corn in 2009, down 1.17 percent year-on-year, according to the China National Grain and Oils Information Center.

Some processing enterprises stocked more corn than previous years amid inflationary expectations. Speculative funds also flowed into the agriculture industry, as a result of government tightening measures targeted at the real estate sector. "China's demand and supply relationship hasn't changed much this year, compared with previous years," said Xu Xiaoqing, an economist with the rural economy department at the development research center under the State Council.

China's overall corn demand is about 150 million tons this year, less than the national output of 163.97 million tons in 2009, reducing the likelihood of price rises. An imagined supply shortage sparked an unnecessary panic.

Both China's central and local governments have large stockpiles of corn. We'll arrange the release of State corn reserves after the preliminary reserve run out if demand still rises," Zeng Liying, deputy director of the State Administration of Grain, said. China will see corn imports increase this year because of competitive prices of imported corn, but it's mainly a corporate behavior. It's too early to predict China will switch to a net importer from a net exporter.

Copyright (c) 2010 Steven Jiang

by: Steven Jiang

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