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Market eyes China's rejection of U.S. corn

12/06/2013 @ 9:54am

China's recent rejection of U.S. corn containing a genetically modified strain that hasn't been approved for import may herald reduced shipments of the grain from the world's largest exporter to the world's largest consumer.

Any reduction of U.S. exports to China could weigh on international prices of the grain, already down more than 40% since a year ago, amid strong harvests in both China and the U.S. A few years ago, China's corn imports wouldn't have made a big difference internationally, but it has sharply increased shipments from overseas, mainly from the U.S., over the past couple of years.

In the marketing year that ended in September, China imported 5.2 million metric tons of the grain, which is mostly used in animal feed, steady compared with a year earlier and up fivefold from 2010-11.

Earlier this week, China's General Administration of Quality Supervision, Inspection and Quarantine said that it had rejected more than 120,000 metric tons in five separate shipments of U.S. corn this week after inspectors in Fujian, Shenzhen and Shandong provinces found the genetically modified insect-resistant MIR162 strain. Shenzhen regulators also rejected U.S. grain for the same reason last month, it added, without providing any details. The agency wasn't immediately available for comment.

"We're likely to see fewer shipments [from the U.S.] in the next few months, as China seems to be stepping up scrutiny on GMO imports," said Zhang Yan, an analyst at Shanghai JCI, an industry consultancy.

Corn imports may be significantly lower than her original estimate of 1 million to 2 million tons, Ms. Zhang said. The U.S. accounted for 98% of China's corn imports in 2012-13.

Earlier this month, March corn futures traded at the Chicago Board of Trade dipped below $4.20 a bushel, a three-year low. The benchmark contract was trading above $7 a bushel as recently as May, as expectations for a record harvest started building momentum.

Robust Chinese demand to take advantage of low prices has to some extent kept prices from falling even further. In August, the U.S. Department of Agriculture estimated that Chinese buyers had lined up 3 million tons of the new U.S. corn crop, up from 800,000 tons at the same time a year earlier.

Appetites for U.S. corn have muted interest in domestic corn, which is trading around $388 a ton compared with shipments arriving at Chinese ports this month around $245 a ton.

But the rejections have prompted second thoughts about U.S.-China arrangements.

"A lot of people are just waiting now, especially foreign [corn] suppliers, because ultimately they're the ones to lose" if shipments are rejected, Shanghai JCI's Ms. Zhang said.

"If the [Chinese] government wants to pick on U.S. corn imports, then I suspect more rejections will come along" in the coming weeks, said a Beijing-based trader at a foreign commodity house.

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