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Was it China?

03/13/2012 @ 1:51pm

The U.S. corn market got the Chinese sale it was looking for Tuesday.

The U.S. Department of Agriculture Tuesday reported private exporters sold 240,000 metric tons of U.S. corn for delivery to unknown destinations. Commodity traders widely believed the buyer was China as the nation made its largest corn purchase of the year in the face of surging demand and rising domestic prices.

Corn prices rallied starting Friday at the Chicago Board of Trade on speculation Chinese buyers were back in the export market, with the front month contract up 4.1% to a six-month high by Monday's close. On Tuesday, though, the rally stalled as investors took money off the table, with some disappointed the sale announcement wasn't bigger.

"The sale today was China," said Joe Bedore, Vice President of floor operations for INTL FCStone. "The long term deal with China is, whatever they grow is used. Therefore, the state is going to have to come to the U.S. to replenish their reserves."

Corn futures for March delivery recently were flat at $6.71 1/2 a bushel, while May futures, the most-actively traded, were flat at $6.59 1/2 a bushel, after giving up gains earlier Tuesday.

Chinese corn demand has swung prices as the nation has reentered the export market in recent years after a 13-year absence. Fueling import demand is a Chinese population whose diet is changing as the nation's economy surges. Chinese consumers are demanding more meat, which requires more corn as feed for livestock. Meanwhile, corn production is struggling to keep up even as the government aims for self sufficiency.

The USDA forecasts China will import a total 4 million metric tons of corn in the current crop year, up from 1 million metric tons the prior year. The purchase this week would put U.S. export sales to China at the 4-million level with five months left in the current crop year.

Sparking buying interest from China is high prices for domestic corn, which now are slightly above the cost of imported corn. In response to the price difference, Chinese mills that convert corn into animal feed are making inquiries about U.S. supplies, and some of them have signed deals to buy, though the deals have been small so far, according to Shanghai JC Intelligence Co., a commodity consultancy.

Still, analysts in the U.S. said the recent rally in corn prices may have been enough to slow some of the Chinese interest, and more export sales will have to materialize for the recent rally in futures to continue.

"If that's all that shows up, it's negative," said Chad Henderson, analyst with Prime Ag Consultants in Wisconsin, on the reported sale Tuesday.

--Andrew Johnson Jr. and Zhoudong Shangguan contributed to this article.

(END) Dow Jones Newswires

March 13, 2012 14:19 ET (18:19 GMT)

DJ US Corn Markets Expectations Are Answered: China Enters The Market->copyright

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