China refrains from grain exports amid inflation fears

China refrains from grain exports amid inflation fears


Hong Kong: Beijing has refrained from issuing expected export quotas for corn and wheat, a move traders said reflected the government’s concern that high grain prices are fuelling inflation, already at a 10-year high.

Initially Beijing was expected to hand out export quotas of about 3 million tonnes this year after issuing the first batch of about 1.4-1.6 million tonnes in April.

Traders said the government had scrapped its plan ahead of the autumn harvest, which starts in October, despite expectations for a record corn harvest.

“No more export quotas," said an executive at one of the country’s authorized corn exporters. “The government is worried about inflation. They believe it was because of the food prices, and especially because of high grains prices."

Domestic physical corn prices have edged up after stabilizing following Beijing’s clamp-down on the corn processing industry during the second quarter this year.

A senior government official said last week that the country’s consumer price index would probably stay at lofty levels even in September and October, partly due to high international prices.

China was likely to harvest a record 149 million tonnes of corn this year, a rise of 2.42% from 2006, as larger acreage offset drought damage, particularly in the northeast, according to the China National Grain and Oils Information Centre.

Asked about the 2007 corn crop, the executive at the exporter said: “I am not optimistic. If the temperature drops early or rains in the near future, it can have a serious impact."

In the wheat market, the traders and officials said Beijing did not give new export quotas to COFCO, the sole exporter of the grain, despite ample domestic stock and international prices hovering at highs not seen for a decade.

“They’re short of quotas for wheat," said a senior trader at an international house. “The government did not give more quotas to COFCO as many had expected. The government is worried to make the same mistake as India."

The trader was referring to Indian purchases of 795,000 tonnes of wheat to replenish its stocks after years of exports.

India was paying as much as $389.45 per tonne as international prices climbed nearly 80% since April to levels not seen in more than a decade, due to extreme weather in top producing regions, such as Europe.

With freight rates also at historic highs, pushing up costs for grain imports from the United States, Chinese wheat has regained a competitive edge in Asia, especially in nearby countries such as South Korea where it is used in animal feed.

Customs data showed wheat exports totalled 1.19 million tonnes during the first seven months, up 210.9% year-on-year, helped by a bumper winter crop of 102 million tonnes harvested early in the year.