BEIJING (Dow Jones)--Chinese corn prices have risen in recent weeks despite
state sales as the government - the only significant source of domestic supply
until the next crop hits the market in December -has refused to sell current
stocks at a price below its own procurement prices.

  Prices have also been supported by expectations that the government won't let
prices fall ahead of the next harvest.

  With recent government auctions setting what many consider to be a high price
floor ahead of the harvest, China is unlikely to export much corn this year as
international prices are below what Chinese exporters will need to pay to
secure supply.

  The government sold 3.23 million tons of corn in the past four weeks at
prices ranging from CNY1,490-CNY1,690/ton, helping push up spot price by 2%
during the period, according to data from Changchun National Grain Trading
Center.

  Spot market prices at China's Dalian port are currently around CNY1,710/ton
or $250/ton, while global prices are around $205/ton, according to a recent
contract signed by South Korea's Major Feedmill Group for 110,000 tons of U.S
corn to be shipped in February 2010.

  "The current difference between local and global prices is too huge, and even
if the government provides subsidies to exporters (it won't make much of an
impact)," said Shen Wei, deputy general manager of the corn division of COFCO
Ltd., a major corn exporter.

  So far this year, the government has issued a corn export quota of 700,000
metric tons but only 70,834 tons have been exported in the first seven months
of this year, and most of it went to North Korea and Taiwan.

   Govt Retains Control Over Domestic Prices


  Last year, the government bought a record 35 million tons of corn from
farmers, more than a fifth of a total harvest of 166 million tons, at an
average price of around CNY1,500/ton. That was 4%-6% higher than prevailing
market prices at the time.

  Even with the government offloading nearly 10% of that in recent weeks,
prices have held up surprisingly well, analysts say.

  "Government sales didn't push prices lower. On the contrary they supported
cash prices by setting a floor," said Wang Cheng, an analyst with Nanhua
Futures Co.

  Market participants expect government sales to hit 10 million tons by October
to make room for the new crop in state-run granaries.

  China National Grain and Oils Information Center, a state-supported
think-tank, has estimated that Chinese corn production will rise by 3.5 million
tons to 166.5 million tons this year, mainly because of higher acreage despite
some weather-related hitches in the northeastern region earlier this year.

  The harvest typically starts in October but large volumes of corn won't reach
the market before December because of high moisture content in the crop.

  Li Hongwei, a cash trader at Cerestar China Resources Maize Industry Co.,
said he expects the government buy corn from farmers this year at a price not
less than the average CNY1,500/ton it paid last year.

  "Government's policies aim to stabilize corn prices at certain levels, and it
will buy corn if prices fall too much after the harvest," said Ma Wenfeng, an
analyst with Beijing Orient Agribusiness Consultant Ltd.

  During a recent trip to Jilin, a major corn producing province in the
country, Premier Wen Jiabao said the government will gradually raise
procurement prices to encourage farmers to plant the crop again.


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