China's Corn Exports May Plunge as Local Demand Rises (Update5)...

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    China's Corn Exports May Plunge as Local Demand Rises (Update5)

    By William Bi

    March 23 (Bloomberg) -- China, the world's second-biggest corn producer, may slash exports of the grain by almost half as the livestock sector expands to cater for more meat-based diets and industrial use surges in line with economic growth.

    Corn exports are forecast to fall 44 percent to 2.5 million metric tons in 2007/08 from 4.5 million tons in the current year ending in September, Jiang Jianhua, vice chairman of Jilin Grain Group Co., one of the country's two authorized grain exporters, said at the China JCI feed conference in Guangzhou today.

    Reduced Chinese corn exports will further shrink worldwide supplies that the U.S. Department of Agriculture expects will drop this year to the lowest since 1978. Corn prices have risen 87 percent in the past year due to record production of the alternative fuel ethanol and global demand for livestock feed.

    ``If China's corn exports fall in the coming year, we have no choice but to source the grain from the U.S. or South America,'' Lee Young Il, foreign trade department general manager at Nonghyup Feed Inc., South Korea's second-largest feed corn importer, said by phone.

    China's meat production has grown an average 4.8 percent a year for the last five years, boosting livestock feed demand, while the starch and ethanol sectors have grown more than 15 percent annually in the same period, the U.S. Foreign Agricultural Service said in a report dated March 1.

    ``Driven by increased industrial usage and declining stock, domestic supply is becoming tighter and tighter,'' Jiang said. The world's most-populous country is eating more meat as incomes rise with economic growth, which was 10.7 percent last year, the fastest in 11 years.

    Production Rising

    China's corn production, second only to that of the U.S., is expected to rise 1.4 percent to 146 million tons this year, the China National Grain and Oils Information Center said on March 7.

    Chinese demand for corn is forecast to rise 2.9 percent in the year ending September, the U.S. Department of Agriculture said March 9. Corn is mostly used for animal feed and as starch in sweeteners, paper-making, textiles and food-processing. High oil prices are also encouraging output of corn-based ethanol.

    ``The growth of China's corn processing capacity has been extraordinary in terms of both the rate and the scale,'' said Wang Licai, deputy general manager of Yellow Dragon Food Industry Co., a corn-processor in Jilin, the main corn-growing province.

    Demand may cut China's corn stockpiles this year to almost half the level of four years ago, when the country exported 15.2 million tons, the U.S. Department of Agriculture said.

    Export Curbs

    Chinese corn exports for the year ending September will be no more than 3.8 million tons by the end of this month, out of 4.5 million tons of export quotas issued, Jiang said, adding that the government may not approve further sales.

    China's exports go mostly to South Korea and Japan. South Korea bought as much as 660,000 tons of corn, mostly from the U.S. or South America, between Feb. 28 and March 2, according to a supplier familiar with the purchases.

    `We have not been given any quotas,'' Jiang said, commenting on speculation the government may have issued new export quotas.

    Jilin Grain and China National Cereals, Oils and Foodstuffs Corp. are the only two companies allowed to export grain.

    Still, the 2006 harvest may be 10 percent more than official estimates of 144 million tons, and another good crop this year, may prompt the government to ease export restrictions, Jiang said.

    Chinese farmers have been holding back sales in hope of further price rises, as Dalian Commodity Exchange corn futures soared 21 percent in the last six months.

    ``The situation has changed,'' Jiang said. Farmers are now rushing to sell corn to prepare for planting next month. Corn plantings are forecast to rise 1 percent to 27.4 million hectares this year, the Grain and Oils Information Center said.

    Chicago corn prices have fallen 7 percent since reaching a 10-year high of $4.5025 a bushel on Feb. 26, on speculation U.S. farmers will increase acreage to benefit from higher prices.

    The May delivery contract rose 0.1 percent to $4.10 a bushel at 5:21 p.m. Singapore time in after-hours trading.

    To contact the reporters on this story: William Bi in Beijing at [email protected]

    Last Updated: March 23, 2007 05:27 EDT

    http://www.bloomberg.com/apps/news?pid=20601089&sid=a9ULo8ya2QHs&refer=china
 
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