China may hold corn imports until H2 2012 amid record harvest

A record domestic harvest and easing food inflation show little sign that China, the world's second-largest corn consumer, will resume imports from global markets until maybe the second half of next year, analysts said. Sinograin, which manages state reserves, has shifted to stockpile domestic crops after it purchased 3-4 million tonnes of US corn this year to help refill state reserves and cool food inflation.
"There is no strong motivation (for Sinograin) to import after a bumper harvest while next year's economic growth is foreseen as not so promising," said Sun Xiaofei, an analyst with China Futures Co Ltd. "As long as there are enough supplies in the market and inflationary pressure is not at a high level or the earlier level, the government will not rush to import and build up its reserves."
Despite a record harvest last year, China turned into a major importer of US corn. Its latest large one-day purchase in early October drove the Chicago Board of Trade to trade limit up on the day. China's annual inflation in November hit its lowest in more than a year, easing from July's peak of 6.5 percent. In order to shore up farm prices and protect farmers, Sinograin is buying corn from farmers in the north-east amid concerns over a possible slowdown in demand.
"Imports in the short term may not happen after a bumper harvest, but still there is a possibility in the second half of the year," said Li Qiang, chief analyst with Shanghai J.C. Intelligence Co Ltd (JCI), an influential private agriculture consulting firm. Many analysts have cast doubts on how much the country's corn harvest will grow this year, which was put at a record 191.75 million tonnes, up 8.2 percent on year, according to the National Bureau of Statistics.
Li, who is touring the north-east regions, said farmers are not selling their corn at large quantities to the government as the price offered - 2,000 yuan ($310) per tonne - is not attractive. Beijing's stockpiling helped market prices rise to 2,100 yuan per tonne, but a large volume of sales by farmers will happen in April when they need cash to buy materials for next year's planting, he said.
The market considers the government's price as the bottom price for Chinese corn, equivalent to 2,350 yuan per tonne at ports in major consuming areas down in the southern province of Guangdong. "Right now, the price gap with US corn is not very big for feed mills to import, but they will do so if the price gap is more than 100 yuan per tonne," said one senior corn trader, adding that US corn prices at about $5 per bushel shall lure those with import quotas to buy.
Chicago Board of Trade corn fell 2.3 percent overnight to $5.8-3/4 a bushel, its biggest drop since mid-November, on deepening concern over the European debt crisis. Chinese feed mills have had no chance this year to import US corn as prices have been mostly higher than domestic supplies, except for Sinoggrain, whose imports are exempted from 13 percent of value-added tax and 1 percent of import tax.
"We do not expect imports to happen in the first half of next year, maybe there is chance in the second half of the year. Any imports during the time of the government's stockpiling to shore up home prices will have potential policy risks," said one trading manager with a major feed mill in Guangdong. He said cheaper Australian wheat would still be a choice after China bought about 600,000 tonnes of feed wheat from the country this year.
"There are cheaper alternatives to corn which is why Australian wheat has been going in there. Everyone is still factoring in Chinese corn imports but the fact of the matter is that it is not economic to do so," said Brett Cooper, senior manager of markets at FCStone Australia.