Chinas decision to resume corn exports could pressure the United States and other producers into discounting their grain to remain competitive on the world market, traders and grain industry sources said on Thursday.
We will see a price war, a US trader said. People are already discounting US replacement by $3-$4 a tonne.
China, once one of the worlds biggest corn exporters, banned overseas sales of the grain in December 1994 to help re-build dwindling central stocks.
Total sales of Chinese corn this month to Southeast Asia could hit 300,000 tonnes by the end of this week, traders said.
The market was unsure about how to read the sales. Some traders said they did not necessarily signal a full lifting of the export ban, while others said they could be the start of a flood of Chinese corn onto the world market.
Some traders said Chinese sales this year could hit one million tonnes. Already in the past week, at least 76,000 tonnes have been confirmed sold to South Korea, for April-May arrival at between $139.50 and $143 a tonne, inclusive of cost and freight (C&F).
Emerging competition had pushed the Chinese price down to $129 a tonne C&F for May arrival by Thursday afternoon, as trader Toepfer secured two 52,500-tonne shipments in a Korean Feed Association tender. US trader Cargill sold one cargo of 52,500 tonnes of corn in the same tender with a sellers option for Chinese corn at $140.10 for March 30 arrival.
Traders representing Chinas central food trading arm will travel to Manila on Thursday to hammer out the final details of a government-to-government deal to sell 145,000 tonnes of Chinese corn to the Philippines, said a trading source who expected the deal to be quickly finalised.
They have already done 150,000 tonnes to South Korea and Malaysia, so theres 300,000 tonnes right there, and from there they could do a bit more, another trader said.
Chinas corn crop harvested in late 1996 has been estimated by Western and Japanese grain traders at 110-118 million tonnes.
A good proportion of the harvest went into central reserves because the government was offering farmers above the market price for the quota they must sell to the state, a trader said.
With farmers getting more than 1,000 yuan ($120) a tonne from the grain bureaux, they delivered to the government everything they could, he said.
So now the silos are choc-a-bloc and the treasury is empty in terms of grain procurement, he said.
Exports will be an attempt to re-balance the books and stem the negative market feelings.
The current Chinese market price for corn is about 800 yuan a tonne, while corn is being offered for export at the northeastern port of Dalian for 1,040 yuan a tonne FOB (free on board).
Whether the government now gives the green light to exports depends on how comfortable the authorities are about the domestic supply/demand situation, traders said.
Around 1.5 million tonnes of corn is being moved from northern growing areas to the south, to relieve pressure on storage facilities, traders said.
And according to one well-connected trading source, 200,000 tonnes is being sold to a number of Central Asian countries that suffered poor 1996 corn crops. This could not be confirmed.
US corn is arriving in Southeast Asia at $152-$153 a tonne, a Singapore source said. April arrival is priced around $141-$142 a tonne C&F.
Argentine corn, available from late April, is already being discounted, another source said.
Its cheap for summer, $134-$135 C&F, he said, against $135-$136 two weeks ago. Sales have been reported in Thailand as low as $130 C&F.
The question for traders was, would the Chinese sellers push their prices down to that level, thereby forcing the US, which had considered the market its own, to discount further.
The US exporters will have to price themselves lower, another trader said. It is tight, but not so tight that they cant afford to maintain their export programme.
Evidence of Chinese corn sales weighed on Chicago Board of Trade (CBOT) corn futures on Wednesday, with March closing down 1/2-cent at $2.70-1/2 per bushel.
China has the freight advantage in the region, especially with the growing number of ports able to take large Panamax-sized vessels (up to 65,000 dwt), another source said.
A Japanese trader said freight to Japan could tip the balance in favour of Chinese corn if the export programme did kick off.
Japan could be interested in Chinese corn, it depends on price, the trader said by telephone from Beijing. Even if it is a little higher than CBOT, we can ship directly to Japanese local ports and save on the freight.
