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  • Unconventional Ag

Big China Corn Premium May Tempt Buyers to Step Up Imports

Falling global corn prices widening the discount against high domestic prices, are making full-duty corn imports a more economic choice for buyers in China, the world’s second largest consumer.

As prices remain near a five-year low, a pickup in Chinese imports would go far toward boosting prices, however analysts warn that volumes may initially be low due to government actions to limit shipments.

China allows 7.2 million tons of imported corn per year at a 1% import tariff. These imports are mainly allocated to large state-run companies leaving privately held companies a small percentage of import corn, forcing them to rely upon domestic suppliers for the balance of their requirements. However, global corn prices have fallen 9% this year, making even ‘out of quota’ corn carrying a 65% duty economically attractive compared to higher priced domestic corn.

There are significant risks for Chinese buyers accepting ‘out of quota’ corn shipments however. China’s corn inventories are currently very high at 150 million tons, or eight months’ supply, and the chances that Beijing will begin managing out of quota corn imports are high. To lower theses stockpiles and curb imports, Chinese officials may lower the price of domestic corn to make it more competitive, or may initiate a new round of checks for unapproved genetically modified corn or unapproved contaminants. Moves such as these by Beijing last year, caused a 20% decline in corn imports as 1 million tons of U.S. corn was rejected upon reaching Chinese ports.

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