(Bloomberg) -- A rally in Chinese corn prices is spurring the government to action, which includes taking an unusual step of bolstering supply at a time when sales from farmers are poised to expand.
The government announced a plan last week to resume state corn sales, which will be the first time in years it's doing so during a seasonal peak period for farmers' sales. On Monday, China's top corn region of Heilongjiang followed with an offer to sell almost 1 million tons to designated buyers. These are on top of the 1.3 million tons already sold to refineries and feed mills in Jilin and Heilongjiang in the previous two weeks.
China's corn prices have rallied this year, with futures in Dalian hitting a record at the start of December, amid a need to feed a massive number of hogs as its herd recovers from African swine fever. Overseas purchases by the world's second-biggest consumer have also surged, exceeding an annual corn-import quota set by the World Trade Organization for the first time ever.
While volumes from the government's latest sale are less than the 4 million tons-a-week seen between May and September, the move is a signal that China doesn't want to see prices rise too much, said Meng Jinhui, a senior analyst at Shengda Futures.
The most-active corn futures for May delivery on the Dalian Commodity Exchange closed 1.2% higher at 2,645 yuan on Monday, compared with a record of 2,682 yuan on Dec. 1. Prices have gained 38% this year.
With the gap between domestic and international prices still wide, it's likely that imports will remain strong next month when Chinese mills receive fresh import quotas for the new year. China has bought at least 11.7 million tons of American corn for 2020-21, according to the U.S. Grains Council. This excludes a record 7 million tons sold to unknown destinations, of which some were probably bound for China.
©2020 Bloomberg L.P.
With assistance from Bloomberg
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