DJ UPDATE: Chinas Cofco May Import More Corn If Local Prices Remain High

SINGAPORE (Dow Jones)–China’s state-run Cofco Ltd. may import more corn if local prices remain high, as it has already obtained a quota from the government to buy up to 500,000 metric tons, a person familiar with the developments said Tuesday.

“So far, Cofco has bought six cargoes, but if the need arises, they can buy a couple more cargoes from the remaining (import) quota allocated to the company,” said the person, who declined to be named.

In China, the government allocates quotas to companies planning to import corn. China’s current corn imports are only a tiny part of global trade, but that could change if the size of the next crop there is small, leading to a greater drawdown of stocks and increasing the need for imports.

The country’s corn output fell to 155 million tons in 2009-10 from 166 million tons a year earlier due to a drought, and there are worries that ongoing delayed planting may affect the next crop as well.

Cofco has in the last few weeks purchased six cargoes of U.S. corn totaling around 360,000 tons for shipment between July and September.

The person said Cofco also has an option to buy out and use import quotas of other companies or get an additional allocation from the government.

China is importing U.S. corn for the first time in many years and the government is auctioning local reserves to cool down local prices. Corn prices in China are hovering around the equivalent of $7-$8 a bushel compared with U.S. prices of around $3.50 a bushel.

Feedmillers snapped up almost 800,000 tons of corn that the government offered at an auction Tuesday in the country’s northeast at prices above $255/ton but much lower than market prices.

Imports are taking place at prices less than $240/ton.

It is now cheaper to import corn in southern China than to move large volumes of domestic corn from northern parts of the country, as is the usual trend every year.

It’s possible that around 15 U.S. cargoes totaling 825,000-900,000 tons have been sold to China, Thomas C. Dorr, chief executive of the U.S. Grains Council, said in a recent statement.

Exporters in the U.S. aren’t under obligation to reveal the names of buyers until the time of loading of the cargoes. Traders said some companies want to keep sales to China low-key because a sharp rise in international prices on news of sales to China could discourage further purchases.

Cofco’s current quota of 500,000 tons isn’t too large and indicates that China’s government wants to go slow on imports, at least for the time being, said a Singapore-based commodities analyst.

He said China is currently not facing any dearth of supplies but is still importing the grain because local prices are high amid strong demand.

China’s closing stocks this year are projected at 53 million tons, while its annual consumption is 155 million tons.