Thursday, March 18, 2010

Tight corn supply in northeast

The March 18 "Corn Express" newletter from the China National Grain and Oils Information Center reports that farmers and enterprises have less corn on hand than usual.

There was heavy snow over much of the northeast last weekend and transportation is difficult now. Processors raised purchase prices last week about 20-40 yuan per ton, but farmers are not selling much. In southern Jilin Province, the price of middle-grade corn was up to 1680 yuan/mt, equivalent to $6.25/bu. The price is higher than the support price of 1500 yuan and higher than the 1600 yuan threshold at which the government subsidizes corn shipments to southern China.

The purchase price broke through 1900 yuan/mt in Shaanxi, Gansu and some other areas, over $7 per bushel. By comparison, the processor price in central Illinois reported by USDA/AMS was $3.62-3.73/bu on Wednesday. Chinese mills and processors are paying nearly twice as much for corn as their U.S. counterparts.

The slow sales are partly due to the weather, but also many farmers don't have much grain on hand. Farmers in Jilin have about 40% of their corn unsold and Heilongjiang farmers 45%. The effect of last summer's drought on corn production is now manifesting itself in a tight supply situation. The report says that slow corn sales are a common feature in all production areas.

Many companies plan to increase purchases of corn later in March but farmers are hoping for higher prices. Some farmers may sell corn with high moisture (at a discount).

The report notes that a rise in northeast prices would narrow the difference between the price in the northeast and the port price for shipments to the south. The price at Dalian for shipments to the south is 2000-2020 yuan/mt. Already, the price in Guangzhou has already gone up to a relatively high level. Buyers in Guangzhou are looking into purchasing from Hebei Province.

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