Agro Perspectiva

China corn purchase gives prices a temporary boost

13.05.2010 11:22 "Agro Perspectiva" (Kyiv) — A wave of profit taking blunted a spike in corn prices after China bought a second batch of US corn, fuelling speculation that it is to become a long-term importer of the grain. Cofco, the Chinese state-owned trading giant, has bought six cargoes of US corn, equivalent to 300,000 tonnes, traders said. According to Reuters, the purchase was made on Tuesday night from Bunge, and is destined for feed mills, which have been struggling with soaring domestic prices. The deal confirms rumours which gained pace this week that China was in the market for more US corn, after an initial 115,000-tonne purchase last month, and had issued licences to state importers. It also stoked speculation that China is to become a fixture on corn trade rosters, with many analysts predicting the country will import some 1m-2m tonnes this year. The Hightower Report said it «would not be surprised» if China’s corn imports hit 4m-5m tonnes. «The first trade could have been a one-off. But now we have two, that’s a trend,» a London trader told Agrimoney.com. A City analyst said: «If China is building up strategic reserves, well, we saw what happened when they did that in the soybean market. It’s huge news.» China’s annual soybean imports have more than quadrupled to an estimated 46,000 tonnes over the last decade. However, a jump in prices to $3.79 a bushel, their highest for more than two months, in early Chicago deals foundered as investors banked gains from a bull run of nearly 10% from a late-April low. «It has been somewhat of a buy the rumour, sell the fact day,» Darrell Holaday at Country Futures said. Furthermore, the US Department of Agriculture failed to report the deal through its daily reporting system, provoking some doubts among investors. Chicago corn for May stood 2 cents higher at $3.71 ╬ a bushel in late deals, with later contracts in negative territory. China’s domestic corn prices have soared, following a 2009 harvest which many analysts suspect fell significantly short official estimates last year of well over 160m tonnes. Furthermore, this year’s crop has been hindered by drought in the south west of the country and late snow in the north east. On China’s Dalian exchange, the price of the close-to-expiry May contract hit a record 2,000 remninbi a tonne last week, equivalent to nearly $293 a tonne, or about $7.40 a bushel. «Even adding in freight costs, and there is still plenty of room to spare to make it worthwhile for China to import,» the City analyst said.