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China could return to corn imports

They may have slowed their purchasing pace lately as agronomists and trade officials awaited greater clarity on domestic and U.S. production potential, but Chinese corn importers may soon be forced to resume buying activity after the spread between key interior prices and U.S. export corn has widened sharply recently.

Questions over domestic production potential coupled with delays to export shipments expected out of Ukraine have helped underpin domestic Chinese grain prices, even as U.S. prices have been dragged lower by the ongoing harvest.

This helped widen the price spread between Chinese and U.S. values by more than 10 per cent since the start of November, and could well spur Chinese grain importers to look to U.S. shipments as a way to plug supply gaps until their own production makes it to market around the end of the year.

Even though China is the second-largest corn grower globally and is projected to pull in roughly 210 million tonnes of the grain this year, steady advances in industrial demand for the crop have helped sustain domestic corn prices some $150 per tonne or 40 per cent above U.S. export values for the past several months.

This price spread marks an advance over last year’s $115-$120 differential — which triggered China’s largest-ever corn import purchasing campaign last summer.

The country has already booked around 4.73 million tons of imports from the U.S. this crop year (Sept. 1 to Aug. 31), and since January has shipped in more than 1.6 million tons of the grain from the U.S., Argentina and elsewhere.

But statements from government officials stress that any additional import purchases are unlikely, as the country intends to remain self-sufficient with regard to its corn requirements.

Further, the country struck a deal with Ukraine to secure a total of four million tons of corn over the course of 2013 and 2014 as part of a $1.5-billion loan agreement that is tied to infrastructure investments in Ukraine and elsewhere in the Black Sea region.

However, bursts of heavy rains in the southern Ukraine Corn Belt delayed the harvest by several weeks, and so pushed deliveries of the grain to China to much later in the year than anticipated.

This has left Chinese grain handlers in a bind, as robust domestic demand has depleted interior inventories and fanned food and feed price inflation in many areas.

Concerns over the country’s own production prospects following localized floods and drought have prompted further concern, and set the stage for a potential late-year incursion by Chinese import traders on to the global corn export stage.

American farmers are nearly through with harvest and a stream of supplies are already filtering out of the country’s export hubs on the U.S. Gulf and in the Pacific Northwest. Containerized shipments are also leaving the country via ports in California.

Politics aside, the economics of additional corn imports make sense, as traders can purchase and transport corn from overseas for roughly 70 per cent of the current cost of cash corn in Shandong province.

We have seen before that China is prepared to bend its own rules when it comes to securing corn supplies whenever domestic prices have exceeded overseas values by a wide margin.

So the stage could be set for another wave of Chinese corn imports — even if that does not fully jibe with government-stated intentions.

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