Auction points to tightening grain supply

08:52, April 21, 2010      

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China, the world's second-biggest corn grower, sold all of the grain offered in the second series of weekly auctions held in major producing regions, indicating tightening domestic supply, analysts said.

Traders purchased 800,787 tons of the grain from temporary reserves in northeastern provinces, the National Grain & Oil Trade Center said in statements on its website. The average price was 1,702 yuan ($249) a ton, compared with a base price of 1,580 yuan, according to Shanghai JC Intelligence Co.

China's corn futures have gained 3 percent this year on concern a drought in major producing regions may have cut output by more than official estimates. Speculation China may need sizable imports spurred gains in Chicago prices this month.

"The result shows supply is tight," said Ding Ling, an analyst at Shanghai JC. The market will carefully watch how long the government keeps selling stocks at such a fast rate, he said.

Buyers last week also took the entire 500,000 tons of temporary reserve corn on offer, according to the grain center. Corn for September delivery rose 0.3 percent to settle at 1,927 yuan a ton on the Dalian Commodity Exchange.

Buyers at the auctions are mainly local corn processors, not livestock feed mills, Ding said. Industrial corn processors turn the grain into starch, sugar and other chemicals, whilst feed mills use corn to make compound animal food.

Feed mills in southern China didn't bid in the auctions in the north, as without government subsidies, shipping costs make them too expensive, Ding said.

Separately, China offered 570,400 tons of corn in auctions outside major producing regions on Tuesday. Buyers bought 284,200 tons, or half of the corn that was auctioned, at an average price of 1,874 yuan a ton under a so-called inter-provincial stock-rotation scheme, at an average price of 1,874 yuan a ton, the trade center said.

Feed mills in southern China continue to consider importing, as costs of overseas shipments reaching southern Chinese ports are about 1,850 yuan a ton, compared with 1,990 yuan to 2,000 yuan for domestic stocks, Ding said.

The high water content in grain imported from the United States, caused by wet weather during the harvest last year, is one deterrent for Chinese buyers, as well as risks associated with customs inspections, Ding said.

China's corn planting this year may have been delayed by over 10 days, the China National Grain and Oils Information Center said on Tuesday. Some users are "keen" to import given signs of tightening supply in the domestic market, it said in reports last week.

Source: China Daily


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