(Updates prices in third paragraph after China Premium.)
Aug. 19 (Bloomberg) -- Rain is forecast to bring relief to drought-stricken parts of China, complicating government plans to trim stockpiles that are estimated to be the world’s largest.
As much as 60 millimeters (2.4 inches) are forecast for the Northern China Plain and the provinces of Jilin and Liaoning by Aug. 24 and more rain is expected in the following three days, the National Meteorological Center said on its website yesterday. The drought in the two provinces is the worst since 1961, the Ministry of Water Resources said Aug. 13.
The rains may boost crops as the government tries to reduce a glut that swelled to the equivalent of half a year’s consumption and toughens inspections to limit the influx of cheaper supplies from abroad. U.S.-grown alfalfa, used to feed dairy cattle, is the latest on a list of restricted agricultural imports including barley, sorghum and corn products.
“It’s still more than a month from harvest, so if we get decent rain, crops can make some recovery if they’re not dead already,” Zhang Zhixian, an analyst at Cngrain.com, a state- affiliated researcher, said by phone from Shanxi province. “We don’t know if the national output overall will rise or fall because the droughts have been regional, but we will certainly still have huge supplies in this country.”
Premier Li Keqing called for drought relief measures for the country’s northeast, which he said is a key area for the autumn crop harvest, the water resources ministry said on its website Aug. 13. State-owned Xinhua News Agency warned the drought could end the country’s 11 years of grain output growth.
China began selling corn from state reserves in May, trying to reduce a load that grew to as much as 100 million metric tons, according to Ge Huanna, a Beijing-based analyst at Wanda Futures Co. The country consumes about 212 million tons annually and may have stockpiles of 77 million by the end of the 2013-2014 marketing year, accounting for 45 percent of the global total, according to the U.S. Department of Agriculture.
A month before harvests begin across China, officials in the Northeast Plain, the top growing region that’s more than twice the size of Iowa, have only just begun releasing portions of 2013’s crop that it bought from growers.
The surplus from last year may be as much as 60 million tons, enough to feed the country’s pigs and chickens for four months, according to Yigu’s Dai. The province of Inner Mongolia sold 88 percent of the 151,192 tons of corn from the 2013 harvest it offered last week, according to a statement on the National Grain & Oil Trade Center.
The government began buying corn from farmers in 2008 to boost incomes and raise the country’s agricultural self sufficiency, offering prices that rose 50 percent in the five years to 2013, according to statements on the websites of the National Development and Reform Commission.
Farmers in China responded by switching to corn from soybeans, cotton, tobacco and other coarse grains. Output surged 43 percent over that period to 218 million tons last year, according to the USDA.
Corn on the Dalian Commodity Exchange traded at 2,373 yuan a ton as of 1:20 p.m. local time today. That’s $9.82 a bushel, compared with futures on the Chicago Board of Trade at $3.70 a bushel. U.S. corn cleared at southern Chinese ports cost 1,754 yuan a ton, after taxes and shipping, compared with a local price of 2,750 yuan a ton, according to data from Shanghai JC Intelligence Co., a researcher.
“It would be in the interest of the government to keep prices high,” said Wang Lin, managing director at COFCO Futures Co., a subsidiary of COFCO Corp., the country’s biggest grain trader, adding his comments don’t represent his company’s official view. “If you let in the cheap imports, who will buy the more-costly stuff?”