BEIJING: Expectations of more huge sales of US corn to China received a twin challenge on Monday from a plan to sell state wheat reserves for animal feed use and a comment from a government official that there were no imminent plans to cut tariffs to encourage farm imports.
China turned into a major buyer of US corn last year, having largely stayed out of the market for more than a decade, and many traders expect it to buy more in 2011 to fill the gap between its own production and the massive demand for animal feed and processed corn products.
That theory gained traction on Friday when the US Department of Agriculture reported its sixth-largest single-day corn sale ever, with 1.25 million tonnes going to an unspecified buyer.
But China is seeking to meet some corn demand by releasing state reserves of wheat whose quality has been downgraded and is fit for use in animal feed production, marking the first such sale of wheat reserves to feed mills, analysts said on Monday.
"The feed wheat sales, coupled with corn imports seen totalling between 3-4 million tonnes, are likely to offset corn supply pressure," said Li Qiang, a senior analyst with Shanghai JC Intelligence Co. Ltd (JCI), adding that total feed wheat sales by the government would be 1.64 million tonnes.
Beijing will offer a first batch of 300,000 tonnes of feed wheat on Tuesday, according to an official announcement posted on an industry web site (www.grainmarket.com.cn). In addition, state corn reserves totalling 120 million tonnes and food-grade wheat of 683,000 tonnes would be offered as well.
Qualified feed mills are required to bid for the state corn and feed wheat with a total volume not larger than their 30-day consumption, according to the bidding document.
The feed-wheat sales come after Dalian corn prices hit their highest level last month amid anticipation of corn shortages at home and low state reserves as Beijing tries to tame food price rises. Analysts estimated that state corn reserves have fallen below a one-month consumption level, or 10 million tonnes.
China is also expected to help meet demand by cutting taxes on imports on a range of goods including agricultural commodities, sources told Reuters in February and a vice minister of commerce confirmed earlier this month.
But a government official who has direct knowledge of the situation said on Monday that China had no imminent plans to cut taxes on imports of agricultural commodities.
The source, who was not authorised to speak publicly about the sensitive issue, was reacting to market rumours of an imminent tax cut on imports of various agricultural crops and products.
Chinese soft commodity futures fell across the board due in part to the tariffs cut rumour, with benchmark September cotton contract falling the most by 5.24 percent to close at 28,825 yuan per tonne. Natural rubber also fell 4.45 percent.
"The market is concerned that the tariffs cut will expand to natural rubber, and traders are leaving the market to stay on sidelines," said Guo Cheng, an analyst with Yong'an Futures.
Normally the tariff commission of China's Ministry of Finance would hold a meeting in April or May to discuss any changes to the tariffs effective from July 1. Another meeting in September or October would draft tariff changes as of Jan 1, the source said.
Although temporary adjustments to import taxes could be implemented rapidly and on an ad-hoc basis, the proposed change to the longer-term tax regime would only be made at one of the regular meetings.
So far there has been no conclusion or agreement on the proposal for agricultural goods, although a document has been issued to encourage state owned companies to import manufacturing machinery and high-tech products, the source said.
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