China's out-of-quota corn imports carry high risks
Although the widening price gap between domestic corn and the international market has made full-tariff corn imports more attractive, analysts point out that out-of-quota imports carry significant risks, mainly because domestic corn stocks are huge, and auctions of state-reserve corn could narrow the price gap between domestic and international markets, while the GMO issue remains uncertain.
Although the government currently does not restrict corn imports, companies are still deeply worried that policy may be adjusted.
Li Qiang, chairman of Shanghai JC Intelligence, said China's corn stocks are very large, and he believes China will strengthen the management of out-of-quota imports.
China's state-reserve corn stocks have reached a record 150 million tonnes, enough to meet more than 8 months of consumption demand.
The Chinese government is taking measures to reduce the pressure of stocks, but the response to state-reserve corn auctions has been lacklustre, so the government may lower auction prices, which could push domestic corn prices down under pressure and in turn erode the profits from corn imports.
A purchasing manager at a large private feed processing company said that based on the above considerations, out-of-quota imports still carry very high risks. In addition, if imported corn contains GMO components not yet approved by the Chinese government or other contaminating components, once the Chinese government implements new inspections, this will also bring risks to importers.
In 2014 China's corn imports fell to 2.6 million tonnes, down about 20% from 2013, because the government strictly investigated imports of unapproved MIR162 genetically modified corn, resulting in more than 1 million tonnes of US corn cargoes being rejected and shipped back. At the end of last year the Chinese government approved imports of MIR162 genetically modified corn, but most buyers still avoided importing US corn and instead chose to import Ukrainian corn or corn substitutes.