In a report issued last week by the state-owned China National Grain and Oils Information Center, they said China may import corn from the U.S. as prices are now competitive compared with local supplies.
"Right now for corn imports into China there is a 13% value added tax, or VAT, and a 1% duty for a 14% additional charge," said Cary Sifferath, the China Senior Director for the U.S. Grains Council in their Beijing office. "Even with that charge added on top of freight to China, U.S. corn is about even to slightly discounted to local Chinese corn into the southern China ports. Because of that, there is a possibility that people who have corn import licenses, especially in the south, are currently looking at the possibility of importing corn."
Sifferath says the reason for this is not because China is short of corn. In 2008, the official harvest of corn was 165.5 million metric tons, the largest in history. But the Chinese government is buying large amounts of corn in northeastern China, which is one of the major producing areas. Sifferath says they are doing this to increase the corn price at the farmer level to help insure that farmers continue to make money growing corn and other grains, and continue to plant and produce plenty of corn this coming year.
"So that has caused a price spread between corn price within China and what corn is actually doing in the world market," Sifferath said. "That's why we are seeing a little bit of a price spread or even seeing U.S. corn at a slight discount to Chinese corn in southern China."
Southern China is a corn deficit area that has to bring corn in from northern China anyway, and because of that feed companies in southern China are looking at the possibility of importing corn. To do that, the companies would have to have received a corn import quota from the government earlier in 2009, which there are some companies that have done so and have quotas in hand.
"We've had face-to-face discussions during the past two weeks with some of those major feed millers in the south and they are a little bit nervous about what would happen if they were to import corn," Sifferath said. "The government could try and use biotechnology or other quarantine or inspections issues to try and delay the unloading or clearing of customs. Maybe delay it for 20 or 30 days which would add a lot of cost onto the landed corn price or they could possibly try to deny the entry of the corn altogether."
Because the government is trying to hold corn prices high, Sifferath says an even bigger price spread might be needed for someone to look at importing corn. He says in May the Chinese government will begin auctioning off the corn they purchased back into the market.
"If they were to auction it back at a price high enough to cover their purchasing price, drying costs, storage costs and other things then we would probably see even higher corn prices than we're seeing now in southern China," Sifferath said. "Which then may push some of those feed companies in the South to look toward importing."
On the other hand if they sell it back at a discount into southern China to give some relief to corn prices then there may not be as much of an incentive to import corn.
"As we go through the next few months we could see some U.S. corn sold into China and at the same time we might not see any," Sifferath said. "We'll have to kind of wait and see what happens here mainly in the next 30 days as to what the corn price does domestically and the element for domestic corn prices throughout the summer to see if we see somebody actually try and import."