China's u-turn on corn imports 'won't last long'

China's shelving of plans for hefty imports of corn, which was blamed for sparking a reversal in grain markets, may prove short-lived, Commerzbank said, highlighting the country's battle against inflation.

Beijing reportedly drew up proposals to ship in millions of tonnes of the grain only to ditch them when a series of sales from state stockpiles succeeded in curbing the premium of domestic prices over those in the US, the largest exporter of the grain.

"The timing was not appropriate and [US] prices were high," a source told Reuters, the news agency.

The u-turn - which followed talk last year that it was negotiating a corn trade deal with Argentina, a major exporter of the grain - was blamed for a drop of up to 1% in Chicago corn on Friday, putting pressure on other grains too. Chicago wheat fell 2.7% at one point.

"Talk that after China has decided to not make large import purchases of corn at this time offered pressure to the corn market," Benson Quinn Commodities said.

Sugar comparator

However, China's ability to keep a lid on corn prices may last only as long as its stocks, which some analysts have pegged as low as 10m tonnes, Commerzbank analyst Eugen Weinberg said.

The US Department of Agriculture has estimated China's inventories ending 2010-11 at 60m tonnes.

"Selling stocks can bring down prices," Mr Weinberg told Agrimoney.com, noting China's success last year through state sales in fuelling last year's plunge in sugar prices from more than 30 cents a pound in February to 13 cents in May.

"But it only works temporarily. Sugar is back at 31 cents a pound."

Inflation battle

Eventually, China, which returned to significant imports of corn last year with purchases of 1.5m tonnes, would be forced to return to foreign supplies to quell an inflationary problem highlighted on Friday when the country, again, tightened bank reserve requirements in an effort to stem the flow of new loans.

The move, ahead of economic data due next week, followed six lifts last year to bank reverse strictures, with interest rates raised twice in 2010 too, in October and on Christmas day.

"We still believe China will import a significant amount of corn this year," Mr Weinberg said, although potentially "at a later point in time".

Chicago corn for March stood 0.7% lower at $6.48 ¼ a bushel at 16:45 GMT, with wheat down 2.2% at $7.66 ¼ a bushel.

In China, corn for March closed at 2,087 yuan ($316.70) a tonne, equivalent to a little over $8 a bushel.

(Source: http://www.agrimoney.com/news/chinas-u-turn-on-corn-imports-wont-last-long--2709.html)