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China’s Drought to Shrink Corn Harvest First Time Since 2009

August 8, 2014
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Corn output in China may drop for the first time in five years because of drought in the North China Plain, the country’s second-biggest producing region, according to Shanghai JC Intelligence Co.

Output may decline to 200 million metric tons from last year’s record 203 million tons, the agricultural researcher said in e-mailed statement yesterday.

The widespread drought in the North China Plain fueled rallies in grains traded on the Dalian Commodity Exchange. Rising domestic corn prices will prompt animal-feed producers to use alternative grains such as wheat and complicate the government’s efforts to curb cheaper imports.

"Feed mills will want to use more wheat as substitute for more-expensive corn," said Zhang Zhixian, an analyst at Cngrain.com, a researcher owned by China Grain Reserves Corp. "Imported materials are surely much cheaper, but whether to buy more imports is a decision by the government."

Output in six provinces including Henan, Hebei, Shandong, Shanxi, Shaanxi and Inner Mongolia will be lower than estimates a month ago, according to Shanghai JC. Henan, the worst affected province and China’s fifth biggest producer last year, will see yield plunge 12.2 percent, the researcher said.

Corn for December delivery fell 0.3 percent to $3.70 per bushel on the Chicago Board of Trade at 2 p.m. Beijing time. Futures are down 12 percent this year on expectations of a bigger U.S. harvest. The grain last traded at 2,373 yuan a ton ($9.79 per bushel) on the Dalian exchange.

Cheaper Imports

 

U.S. corn shipped to China’s eastern ports would be about 1,775 yuan a ton, or about 65 percent of domestic prices, Shanghai JC data show. Since November, China has increased inspections of corn shipments and rejected those found with genetically modified variety MIR 162, which it has not approved for import.

After traders responded by shipping substitutes such as dried distillers’ grains, sorghum and barley, the government took further steps by effectively banning DDGS imports and announcing it would also toughen controls on sorghum, barley and alfalfa hay, according to statements by General Administration of Quality Supervision, Inspection and Quarantine in Beijing.

 

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