Delays in corn shipments from the United States have offered China a chance to showcase its grain to major Asian buyers like Japan and South Korea, raising the prospect of a new player in global grain markets.
One deal is close and talks have begun on two more, sources said, with China benefiting from its close proximity to big Asian customers and bulging stockpiles left over from a now-abandoned farmer support scheme.
While volumes so far are tiny, any challenge to established trade flows would unnerve a saturated global market and the world's main exporters, including the United States, which is under pressure to unload its own record stockpiles in the export market.
"Disposing of corn stocks is a top priority for China's ag policy this year. I think there's also a substantial surplus of new-crop corn that could be exported," said Fred Gale, senior economist at the United States agriculture department.
For now, China's role may be limited to a regional supplier of last resort, given it is charging a hefty premium for its corn and struggling to reacquaint itself with a business it gave up about a decade ago, traders and experts said.
Further out, however, traders say it is still unknown how far the government will back regional exports.
A step-up in sales would help run down vast stockpiles - equal to more than a year's consumption - but longer term China's annual corn surplus is expected to narrow to less than 10 million tonnes, putting a limit on exports.
One major trading house has forecast China will export as much as 2 million tonnes in 2017/18, a source told Reuters, compared with nearly 57 million tonnes of U.S. exports this year and 28 million tonnes by Brazil, according to USDA forecasts.
STORM DELAYS
China's unexpected sales opportunity has come as Asian customers face potential corn shortages after severe winter weather in the United States slowed rail deliveries of crops to shippers.
Japan, the world's top corn importer with purchases of about 15 million tonnes a year, has said it expects to tap emergency stockpiles.
"Japan needs some corn to replenish its stocks. It will be buying more corn from China," said Nobuyuki Chino, a Tokyo-based veteran grains trader.
"It is emergency supplies which should be 200,000 tonnes, that is my expectation. Japan will try and limit its purchases from China as Chinese corn is more expensive than world corn prices."
Japan's Mitsubishi Corp is finalizing the purchase of a 15,000 tonne cargo of corn from China's state-controlled Cofco, two sources told Reuters last week, China's first meaningful seaborne grain exports in at least seven years.
The cargo is expected to ship next week, said one of the sources.
Mitsubishi has agreed to pay as much as $230 per tonne FOB for its cargo, trading sources said, well above a price below $200 a tonne it paid for its delayed U.S. corn.
Cofco did not respond to requests for comment. A Mitsubishi spokesman said the company is considering buying corn from other countries, including China, Russia and South America, but it has not yet finalized a purchase.
Despite the high price tag, talks are underway for at least two more deals between China and Japan, one of the two sources said.
China's does have an advantage over Brazil, Ukraine and the United States of being close to Asia's big importers, including Vietnam and Taiwan.
It takes three or four days to get corn from northern China to Japan, compared with two weeks from the U.S. Pacific Northwest, and up to 35 days from Brazil and Ukraine, which translates into a cost saving of up to $12 a tonne, traders said.
The price gap between South American corn and Chinese corn has already narrowed to about $30-$40 a tonne, said a Singapore-based trader, and further falls would boost China's competitiveness.
"It depends on how desperately China needs to get the corn out. If it's desperate, it could drop the price to $210, even $200," he said.
http://www.reuters.com/article/us-china-corn-exports-idUSKBN1620KK
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