China set to buy more U.S. corn this year

(Reuters) Strong domestic prices and low reserves are likely to force China to import more U.S. corn this year, squeezing tight world supplies, analysts and industry officials said March 14.

China’s corn imports are expected to more than double in the current 2011-12 crop year to four million tonnes from 1.5 million a year earlier, a senior official at a state-run company said at an industry conference in Singapore.

Excessive rains in the country’s northern Corn Belt last year reduced the quality of the domestic crop, helping to push Chinese corn prices more than seven per cent higher so far this year.

The benchmark Dalian September contract hit a lifetime high of 2,458 yuan per tonne March 13, making cheaper U.S. corn more economical.

The U.S. Department of Agriculture on Tuesday confirmed a private sale of 240,000 tonnes of old-crop U.S. corn to an unknown buyer, widely believed by traders to be China.

A private Chinese importer bought 120,000 tonnes of old-crop U.S. corn about three weeks ago in what was the first large sale to China since October.

Dan Basse, president of Chicago-based consultancy AgResource Co., said he saw China buying in July, when he expects state reserves to start running low.

He forecast U.S. old-crop corn prices to stand between $6.80 and $7.20 per bushel, from around $6.70 per bushel now. Corn prices have risen almost four per cent so far this year, compared to a nearly three per cent gain for the whole of 2011.

China, historically a net corn exporter, turned corn importer in 2009 as soaring demand for the grain outpaced its domestic production.

China has bought around one million tonnes of U.S. corn annually in each of the past two years and was forecast to import four million tonnes this year. Some private analysts expect China to overtake Japan as the world’s top corn importer in the years ahead.

China is the world’s second-largest corn consumer. The state agency in charge of grain reserves has said it will not need to import large amounts this year due to a bumper 2011 harvest.

But traders and analysts say China and the influential U.S. Agriculture Department may have overstated the corn crop by as much as 14 per cent, which is likely to keep domestic prices higher and result in more imports.

“Whether we import more or less depends on price spreads. U.S. corn prices are favourable for imports right now,” said the Chinese official who declined to be identified as he is not authorized to speak to the media.

“Domestic corn prices are already on the higher side and they are likely to consolidate around current levels.”

The United States, however, may not be able to meet all China’s needs as the USDA expects domestic corn stocks to shrink this year to their lowest level in 16 years.

Alternative suppliers include Argentina, which recently signed a trade deal with China, but a lower-than-expected harvest is likely to make impossible large volumes of imports, industry officials said.

“This year we don’t see any corn exports to China, maybe one cargo just to prove that the relationship is working,” said Freddy Pranteda, director of grains and oilseeds desk at Buenos Aires-based brokerage Cosur.

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