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China's March imports may signal snags for corn reform

(Reuters) - Despite grossly swollen corn stocks and new plans to begin reducing them, China imported over half a million tonnes of the yellow grain last month.

A harvester unloads corn to a cargo truck at a farm in Gaocheng, Hebei province, China, in this September 30, 2015 file picture. REUTERS/Kim Kyung-Hoon/Files

Data released by China’s General Administration of Customs on Thursday showed that the East Asian country imported 575,350 tonnes of corn in March, mostly from Ukraine. Corn imports in the first two months of the year totaled about 70,000 tonnes, a considerable drop on the year.

Although it has imported only about half the amount of corn during this year’s first quarter compared with the year-ago period, China’s recent trade activity seemingly contradicts the intentions to cut back on the domestic corn oversupply, which it announced late last month.

Even though the plans are to officially begin the “de-hoarding” process at the beginning of the 2016/17 marketing year in October, it has been fairly clear since last year that China is well aware that the corn stockpile is a problem. Beijing first cut the support price for corn in September and then eliminated it altogether in January, citing large government reserves in both cases.

Considering the size of China’s corn stocks, estimated between 110 million and 200 million tonnes, the import of 500,000 tonnes actually represents a very small fraction. But China harvested a record crop last year amid already-record corn supply, which raises the question of why the largest March influx of corn in the last 10 years was necessary.

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It is possible that the sudden surge in corn imports reflects on the amount of corn in storage that is no good.

Analysts have predicted that around 20 million tonnes of China’s corn stocks have turned bad from enduring long periods of storage. But credible sources have claimed that the real figure could be more than three times that amount, which if true, would increase the need for fresh, quality corn.

The destination of the corn might also provide clues. More than half of March’s corn volume arrived in central and southern Chinese ports, away from the corn production regions in the north and northeast where the grain would be stored.

One issue prevalent in China is that the relatively high domestic prices may often prevent distribution of grains within the country. Although the prices have eased since corn reforms took effect last September, the inclusion of logistical costs may favor importing the grains from abroad.

But a good amount of corn was also sent to corn belt locations. Warehouse prices in Northeast China have been at much lower levels lately than the last couple of years, which would logically reduce the need for imports in the region, though again this could be a reflection of stock quality (reut.rs/1Wg2yY5).

It is possible that China’s thriftiness got the better of it last month. China secured the March corn haul for an average $195 per tonne, much lower than the rate it had been paying over the year prior, which was generally closer to the March 2015 level of $255 per tonne.

The one hole in this argument is that the average price for China’s February corn imports was very similar at $197 per tonne with the same Black Sea origins as March. So why did China not import the corn in February? Perhaps the extreme bargain became too irresistible.

If any of the above is truly a factor in the recent corn import surge, there could be major constraints on China’s future plans to curb imports and reduce stocks, and these goals could prove too lofty for the time being.

(Karen Braun is a Reuters market analyst. Views expressed are her own.)

Reporting by Karen Braun in Kiev, Ukraine; Editing by Matthew Lewis

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