(Adds comments from analysts and market participants on the market and price
effects expected from the targeted sales.)


  BEIJING (Dow Jones)--The Chinese government's plan to sell 5.77 million
metric tons of corn from its reserves will likely support prices ahead of the
upcoming harvest, because the targeted sales won't flood into the broader
market, but will ease concerns about potential supply pressure from the massive
reserves, analysts said Thursday.

  The grain will be sold only to large industrial processors in the major
producing areas of the north and northeast with an annual capacity of at least
100,000 tons, an official at a local grain administration said Thursday.

  Analysts said the sales will likely make room for more government purchases
from the harvest starting in October, while helping to ease concerns about the
large volume of reserves.

  "The government will (be able to) buy more corn for reserves, and such
expectations will help support a gradual rise in new corn prices," said Xu
Wenjie, an analyst with Tianma Futures Co.

  The corn to be sold will be subsidized, but market participants said there
will be very strict rules to prevent the lower-priced corn from flowing into
the market, so local corn prices are still likely to be supported.

  The official at the local grain administration, who declined to be named,
said the corn will be sold at the same prices discovered at continuing weekly
auctions, but industrial buyers will receive government subsidies of around
CNY150/ton.

  A total of 12.52 million tons of corn has been offered from reserves since
July 21, of around 35 million tons bought from last year's harvest, but so far
only 5.8 million tons has been sold.

  The additional targeted sales will strengthen market expectations that the
government will continue to buy corn from the coming harvest to support prices
and protect farmers' interests.

  "Traders haven't dared to build up stocks facing big government reserves,"
said Wang Cheng, an analyst with Nanhua Futures Co.

  Now, however, prices are likely to move higher, Wang said.

  Benchmark May 2010 corn futures traded on the Dalian Commodity Exchange
settled 0.8% higher at CNY1,751/ton Thursday, bucking the trend of most other
agricultural commodities.

  The official didn't elaborate on measures planned to restrict movement of the
subsidized grain into the broader market, but said criteria would be set such
that industrial users may not be allocated all of the volume they apply to
purchase.

  The government started to make aggressive grain purchases since last year's
harvest to prevent prices from falling too far during the global financial
crisis. The large reserves have given the government a heavy influence on local
grain prices, as it controls most of the supply.


  -Zheng Xiaolu contributed to this story, Dow Jones Newswires; 8610 6588-5848;
tracy.zheng@dowjones.com