China is set to stockpile corn in large quantities for the third consecutive year, with the volume expected to reach about 4

Industry analysts say that in the 2014/15 marketing year, the Chinese government may stockpile corn in large quantities for the third consecutive year, because domestic demand is unlikely to recover quickly and a bumper harvest has left supply ample.

China is the world's second-largest corn consumer; analysts say it may stockpile about 40 million tons of corn in the 2014/15 marketing year, down from last year's record-high stockpiling volume of 60 million tons.

Industry sources have already regarded the sharp increase in China's corn inventories as the main reason it has rejected cheap U.S. corn. Previously, China rejected large shipments of U.S. corn after detecting unapproved genetically modified components.

Analysts say the expected increase in inventories may further delay the import approval process, which has already taken two years longer than initially expected.

A senior analyst at an industry consulting company said the new stockpiling will push government inventories back to the 100 million ton level.

“With such large inventories, we expect import controls will not be relaxed.”

The government will also soon announce its stockpiling price, and analysts expect it to be flat with last year's level of 2,220-2,260 yuan per ton.

Although the price gap between U.S. corn and domestic corn has reached a record high, feed mills will not seek to buy U.S. corn, after China has rejected 1.25 million tons of U.S. corn since last November because it contained the MIR162 genetically modified component not yet approved for import by China's Ministry of Agriculture.

U.S. corn production is set to hit a record high, dragging the benchmark CBOT corn futures contract price to a four-year low early this month.

Since May, the Chinese government has sold 29 million tons of state-reserve corn, after two years of stockpiling pushed state-reserve corn volumes to a record high of 100 million tons.

China's corn crop was mostly unaffected by summer drought weather, and production losses caused by weather damage have been very small.

Harvesting is currently underway, and according to estimates by the China National Grain and Oils Information Center (CNGOIC), corn production will reach its second-highest level in history.

A recovery in corn demand may still take time, after avian flu outbreaks reduced livestock feed demand, and food safety concerns and the economic slowdown hurt the hog farming industry in the first half of the year.

An analyst at a futures company said: “There is no sign of any improvement in livestock demand, and corn processors are still operating at a loss.”

“A 2-3% increase in demand next year would be the best-case scenario.”

According to data from the China Feed Industry Association, China's animal feed output in the first half of 2014 fell 3% from the same period last year, the largest decline for that period.

In 2013, feed output posted its first decline in a decade.

Hog inventories have begun to increase, but August inventories were still 5.9% lower than the same period last year. August breeding sow inventories fell 10% from the same period last year.

The China National Grain and Oils Information Center estimates that China's corn consumption in 2014/15 will increase 3.9% from last year to 189 million tons.