March 15, 2017 7:36 pm JST
Commodities eye

China keen to unload corn stockpile overseas

Japan resumes imports after 7-year hiatus, opening door for Chinese producers

RURIKA IMAHASHI, Nikkei staff writer

TOKYO -- China has resumed exports of corn to Japan for the first time in seven years, easing the plight of Japanese livestock farmers who are in desperate need of the feed grain because shipments from the U.S. have been delayed by heavy snowfall.

Beijing wants to reduce the country's bulging corn stocks. It has a big opportunity to boost exports, provided it can clear a few hurdles.

The prospective shipments from China will total 20,000 to 30,000 tons, or 0.2% of Japan's annual corn imports. A Chinese ship with a displacement of around 5,000 tons, carrying estimated 10,000 to 20,000 tons of Chinese corn arrived in the port of Shibushi in Kyushu, southwestern Japan, earlier this month. Animal feed makers in Japan expressed relief, saying the shipment will help them cope with tight supplies.

Japan mostly imports feed corn from the U.S. and South America. With the harvest approaching in the Southern Hemisphere, the U.S. was set to take over as the main supplier. But heavy snow in January and February in the western U.S. has slowed deliveries to a crawl. Rail transport to grain export terminals in the Pacific Northwest have been delayed up to one month, forcing ships to remain in port.

The situation is critical for Japan's livestock farmers, who rely almost completely on imports. Feed makers have struggled to obtain supplies of the grain. Domestic reserves held by the private sector are making up for the shortfall. Japanese trading houses, which import and sell and corn to feed makers, have been scrambling to find alternative suppliers. Eventually they turned to China, which has the added advantage of being close by.

That has been a boon to China. In October of last year, Beijing scrapped a program to buy corn at above-market prices from farmers. The price guarantees caused stockpiles balloon from an estimated 150 million tons to 240 million tons. The government is encouraging exports to whittle down the stockpile. It granted export licenses last autumn to at least two companies, including state-owned grain trader Cofco.

Quality matters

Initially, few Japanese importers were keen on Chinese corn, feeling the prices were too high for a relatively low-quality product. Chinese corn goes for at least $30 per ton more than the international market price. Feed makers worried that the grain had spent a long time in storage and so the price is justifiable.

Despite these concerns, Japan restarted imports of Chinese corn. Some feed makers say the quality is better than they expected. "We are buying the Chinese corn as a temporary measure, but if the price starts to meet the international standard, we can possibly consider buying the grain from China on a regular basis," said an executive from a major Japanese feed maker.

Japan's willingness to buy from China, in turn, could improve perceptions of its quality. The biggest obstacle to doing more business between the two sides is price. It is unclear whether Beijing is willing to bring its export prices in line with the international level. But considering its eagerness to ship its surplus out of the country, the market will be closely watching its next move.

 

 

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