China to release corn, rice from reserves

China will release corn and rice from state reserves to help tame inflation and reduce imports as the worst US drought in half a century pushes corn prices to global records, creating fears of a world food crisis.

Friday's announcement was the first release since September last year, when China said it would sell 3.7 million tons of state corn to keep inflation under control.

The release may prompt Chinese importers to cancel shipments in the near term and take some pressure off international corn prices, which set a new all-time high on Friday as the US government slashed its estimate of the size of the crop in the world's top grain exporter.

"Bottom line - rationing is in full force, and given the continually declining state of the US corn crop, more will be needed," said Christopher Narayanan, head of agricultural commodities research at Societe Generale.

China's State Administration of Grain did not specify the volume of corn or rice to be released from reserves. The Grain Reserves Corp will be responsible for selling the crops, but no details were given on the timing.

Some traders estimated the government might sell around 2 million tons to help stabilize prices ahead of the harvest, when supply is usually tight.

Beijing will probably need to replenish reserves towards the end of the year, and therefore the release will have only a limited impact on prices.

"It can help stabilize the market somewhat, but the volume is too small compared with the 10 million to 15 million tons of monthly consumption nationwide," said Xu Wenjie, an analyst with Zheshang Futures Co.

Domestic corn futures on the Dalian Commodity Exchange have risen 12 percent this year to around 2,400 yuan ($380) on Friday, just off the year-high of 2,429 yuan touched on July 16.

A report by the US Department of Agriculture (USDA) on Friday raised its forecast for China's corn crop this year by 2.5 percent to 200 million tons.

"With USDA raising its Chinese corn production estimate ... it certainly makes sense to release some corn from reserves," Narayanan said, noting that the USDA also cut its estimate of Chinese corn imports by 3 million tons to 2 million.