China’s big private feed mills are increasingly turning to sorghum from the US after using up their annual import allocations for preferred animal feed grain corn, according to Reuters.
Rising Chinese imports are expected to boost sorghum prices over the next few months in the US, the world’s largest producer, which is forecast to reap a bumper crop this year. US. sorghum prices are about US$20 a tonne higher than US corn prices, partly due to China’s buying, traders said.
Private mills in China have used up their allocated 2.88 million tonnes of corn import quotas this year and are not expected to ship in more corn until the end of the year when Beijing issues quotas for 2014. Domestic corn is not a viable option as it is way more expensive than US sorghum.
As an alternative, the mills have already bought about 800,000 tonnes of US sorghum for shipment in the 2013/14 year starting in September and total orders are likely to top one million tonnes, with prices still attractive, traders said.
“Big private mills have no corn import quotas left for the year and they are pretty clever in finding this alternative cheap supply – sorghum,” said one industry source, who declined to be identified.
China issues a fixed 7.2 million tonnes of low-tariff rate corn import quotas annually under commitments made to the WTO, of which 60% is for state-owned firms. Corn is the preferred feed grain for mills as it produced widely and in large quantities.
Imports of sorghum, similar in feed value to corn, are not subject to quota restrictions, and buyers need only pay a 2% import tax and 13% value-added tax on their purchases. Mills would be subject to a 65% import tax if they imported corn above their quota allocations.
Big sorghum purchases by feed mills, mostly in the southeastern province of Guangdong, are rare in China where the feed grain is mostly used for making alcohol, analysts said.
US sorghum is about 20%, or 400 yuan (US$65.35) per tonne, cheaper than domestic corn, which has remained expensive because of Beijing’s stockpiling policy, designed to support prices and subsidise farmers.
The US is expected to reap its largest sorghum crop in four years this year, with the total coming in at about 10 million tonnes, of which 30 to 40% will be exported, said the industry source, who is involved in promoting US sorghum in China. Feed mills such as New Hope Liuhe and Guangdong Haid Group make animal feed from grain to cater to rising meat consumption as China urbanises.
Besides private firms, state-owned COFCO and Sinograin have also used up their total corn import quotas of 2.6 million tonnes, said one trading source. Price distortions brought about by the country’s stockpiling policy have driven buyers of agricultural commodities to overseas markets, and at about 2,000 (US$326.89) yuan per tonne, US corn prices are at least 13% lower than those in China.
The government said in July that it would raise the state purchase price of corn by nearly 6% to 2,260 (US$369.38) yuan per tonne from farmers in the major producing areas in the northeast, with prices rising to more than 2,450 (US$400) yuan per tonne for feed mills in Guangdong in the southeast.
With China continuing to stockpile corn, the price gap could widen further, some analysts predicted. “If the government continues to stockpile corn next year and the year after next, corn imports without import quotas subject to a full tax rate of 65% may even be possible someday,” said Shi Yan, chief analyst with Xinhu Futures.
2/3 articles remaining | Register to continue reading.